On Friday, JPMorgan made a significant adjustment to its stance on Penumbra, Inc. (NYSE:PEN), shifting the medical device company's stock rating from Overweight to Neutral. The firm also revised Penumbra's price target downward to $250 from the previous target of $284. This change follows Penumbra's fourth-quarter earnings, which fell short of market expectations for the first time since the company went public.
Penumbra's sales for the fourth quarter of 2023 were reported at $284.7 million, marking a 27.9% increase on a constant currency basis, yet this figure was $2 million below analyst estimates. Both the Neuro and Vascular divisions of the company experienced slight revenue shortfalls. The company's guidance also disappointed, with projected growth of 16-20%, which was not only below initial expectations set in September but also under JPMorgan's more conservative predictions of 18-20% growth.
The guidance adjustment is partly due to Penumbra's exit from certain unprofitable international markets. However, this suggests another year where the majority of growth is expected to occur towards the end, a pattern Penumbra has not consistently capitalized on in the past. JPMorgan expressed concern over Penumbra's recent performance, noting the company's fourth-quarter miss and third-quarter results that only met expectations. The firm indicated that Penumbra needs to demonstrate its ability to provide reliable guidance and consistently outperform those estimates to regain investor confidence.
JPMorgan also addressed valuation concerns, pointing out that with Penumbra's stock trading at approximately 7 times next twelve months' enterprise value to sales, the firm sees more attractive investment opportunities within its coverage universe. This reassessment led to the decision to downgrade Penumbra to a Neutral rating.
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