Stellar Biotechnologies (SBOT) PT Cut to $7 at Maxim Group

Maxim Group analyst Jason McCarthy lowered his price target on Stellar Biotechnologies (NASDAQ: SBOT) to $7.00 (from $17.00) but maintained a Buy rating.

McCarthy commented:

• The biotechnology bear market that emerged in late 2015 continues to drive an increase in the cost of capital and the dilution that companies face. We recognize that Stellar successfully raised capital ($6.75M equity), and we estimate that the company now has ~$14M on its balance sheet. Considering a modest burn rate, we estimate that Stellar is funded into early 2018. However, the net effect of the environment has been to skew valuations to the low end of the historical range. For microcap companies facing a data trough (for Stellar, the trough is related to its KLH partners), sustaining their existing valuations — much less reaching the premium end of the range — has become an unlikely possibility. Due to these factors, as well as the fact that we are pushing out our timeline around KLH supply contracts and factoring in dilution associated with a recent capital raise, the net effect is a reduction in our price target to $7, from $17. Considering the current stock price, plenty of upside remains to support our Buy rating.
• Modeling changes. We have adjusted our assumptions for KLH revenues based on longer timelines to commercialization for key partners like OBI Pharma (breast cancer, still designing a phase III study). The impact is reduced KLH revenues. These factors add up to more risk. Can partner companies get KLH products to commercialization, and how long will it take? We increase the risk factor in our revenue model ("the risk cut") to 75% from 50%. When we then factor in dilution from the recent capital raise, the net change to our model is a reduced price target of $7, from $17.
• Conclusion. We believe it is prudent to adjust our assumptions given the market environment, catalysts (KLH partners), revisions to our timeline for KLH revenues, and "other related assumptions." The net result is a reduction in our price target to $7 (from $17), which still supports a Buy rating given the current valuation of Stellar today.

For an analyst ratings summary and ratings history on Stellar Biotechnologies click here. For more ratings news on Stellar Biotechnologies click here.

Shares of Stellar Biotechnologies closed at $3.12 yesterday.

You May Also Be Interested In

• Fiserv (FISV) PT Lowered to $60 at Freedom Broker
• Zedcor Inc (ZDC:CN) PT Raised to Cdn$7.75 at Desjardins
• GMR Airports Infrastructure (GMRI:IN) PT Raised to INR99 at ICICI Securities