Affordable weight loss drug propels Hims & Hers Health (HIMS.US) shares, but Morgan Stanley issues a warning: the short-term stock price may be overstretched.

Morgan Stanley downgraded Hims&Hers Health (HIMS.US) to "Equal-weight" from "Overweight" on Tuesday, citing the company's recent strong stock price rise, ahead of its fourth-quarter 2024 earnings release next week. The analyst, Craig Hettenbach, wrote that HIMS' stock price had risen by approximately 147% this year, despite the ongoing shortage of semaglutide, a popular weight loss therapy from Novo Nordisk (NVO.US), which the company had launched in a combination form at a significant discount since May last year. Hettenbach noted that the "significant outperformance of the stock raised the bar for near-term expectations," despite the fact that the company met many of the criteria for stock evaluation and "is a compelling long-term growth story." The analyst significantly reduced the target price from $60 to $42 per share and stated that "we believe investors will get a better buying opportunity." He also expected the company to report strong fourth-quarter earnings, which could lead to an upward revision of Wall Street's estimates, but he cautioned that the company might provide conservative guidance to manage overly high expectations. Hettenbach also noted that the company's stock price had risen more than 200% since May last year, when it launched its combination form of semaglutide at a significant discount.