Piper Jaffray Initiates WuXi PharmaTech (WX) with a Neutral
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Piper Jaffray initiates coverage on WuXi PharmaTech (NYSE: WX) with a Neutral rating and a $22 price target.
The Neutral rating is due to Piper Jaffray's conservative outlook on the company's near-term gross margin. In addition, the firm said, "We believe WX's margin will remain under pressure due to sub-optimal facility utilization, non-cash amortization charges, and unfavorable Fx. Specifically on 2Q, we believe it will be challenging for WX to meet the Street's expectations on margins. As such, we expect potential downside going into the quarter. Having said that, we have a favorable long-term view on the solid fundamentals of the company and the overall growth potential of the emerging China CRO industry. We could become more constructive once we gain additional visibility into the AppTec integration and the prospect of margin stabilization."
The firm also believes that the next 6-12 months is "critical period of time for WX as a young organization going through rapid growth and expansion." The company is expanding beyond its core competency in small molecule chemistry, and the firm believes such "expansion and investment will cause pressure on WX's bottom line, which is the growing pain WX is currently going through." However, with a competition in the Chinese CRO business, WX might miss its opportunity should it choose to take a conservative alternative. Overall, the firm strongly believes "in the long-term growth potential of the China CRO industry, and believes WX is the company to watch for because of its established leadership position."
WuXi PharmaTech (Cayman) Inc. (WuXi) is a pharmaceutical, biotechnology and medical device research and development (R&D) outsourcing company, with operations in China and the United States.
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