HALO.US downgraded by Wells Fargo; limited upside for stock price

Wells Fargo downgrades Halo Therapeutics (HALO.US) from "overweight" to "market weight" with a price target of $62, saying the stock has limited upside potential.

Halo Therapeutics' shares have risen 50% this year, while the S&P 500 has gained about 21%. Halo Therapeutics fell 9% to $53.85 at Monday's close.

The upcoming new product is a reason to hold Halo Therapeutics' stock, but Wells Fargo believes that the market's expectations have already been reflected, and adds that the four key products that are expected to drive growth in the short to medium term - Vyvgart, Opdivo, Ocrevus and Tecentriq - and their impact have been absorbed by the market, especially after Halo Therapeutics' 2024-28 guidance in early 2024.

Wells Fargo expects the company's EPS in 2024/25 to be $3.81/$4.69, while the market expects $3.98/$4.75.

Moreover, Wells Fargo believes that the recent licensing agreement with argenx SE (ARGX.US) is positive in the long term, but the Vyvgart royalties will decrease when the Enhance patent expires in 2027 or 2029.

"This means that the two most important products, Darzalex and Vyvgart, may be discontinued in the same year," the Wells Fargo analyst said. "According to our model, these two products will contribute about 58% of royalties for Halo Therapeutics in 2028."

However, the analyst noted that the stock is undervalued due to the royalty potential, and future trades could bring upside.

JPMorgan downgraded Halo Therapeutics to "neutral" from "overweight" last month, saying its valuation is reasonable.