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DSW fairly valued after soaring on Tuesday on return to top-line organic growth, Jefferies says

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Jefferies stays neutral on DSW but B Riley upgraded to 'buy'

Shares in Ultragenyx Pharmaceutical Inc (NASDAQ:RARE) were battered after its aceneuramic acid extended release (Ace-ER) candidate flopped in a Phase 3 clinical study.

Wedbush Securities responded by removing Ace-ER from its valuation model on the stock, and lowered its price target to US$62, though it stuck with its neutral rating in the wake of today's 13% fall to US$51.31.

Ultragenyx, which as its ticker implies is focused on developing cures for rare diseases, had exclusive rights to the product outside of Japan and other Asian territories from Nobelpharma Co; it said it would discontinue further development on the program.

“We see several potential hypotheses that could explain study failure,” Wedbush said.

“Ace-ER was designed to overcome the limitations associated with oral SA administration, namely its rapid clearance from serum, but the failure in Ph 3 suggests that even the extended-release formulation at 6g/day dose (which required 12 tablets per day) was not high enough to support sufficient uptake into muscle tissue.

“The pathology of GNEM also makes it difficult to show efficacy with substrate replacement, since by the time of diagnosis many patients present with extensive muscle tissue damage that cannot be restored. GNEM is also not a well-studied disease and the natural progression of disease is not well-established, and it is possible the study was too short in duration for sufficient functional decline to occur in placebo arm,” the broker speculated.

“We believe Ace-ER could potentially succeed in a larger and longer study, perhaps in a more select GNEM population, but decision to discontinue program indicates further investment would not be justifiable given the risk and limited economic opportunity,” Wedbush concluded.

Footwear seller DSW inc (NYSE:DSW) was a star performer yesterday after it revealed it had returned to sales growth on a like-for-like basis, but Jefferies thinks the shares are now fairly valued at current levels.

“We continue to see DSW as a share gainer in a tough environment, but see the current valuation as fair, especially as DSW's plan to defend its mkt share may stem GM [gross margin] upside near-term,” Jefferies said, as it raised its price target to US$20 from US$18. The rating remains 'hold'.

The shares currently trade at US$19.

“While DSW should benefit from consolidation within the footwear space and its various merchandising initiatives, we believe the current valuation is fair, especially taking into account the challenging environment, which may stem some of the GM upside as DSW focuses on maintaining positive comps,” the broker said.

Elsewhere, B Riley upgrade the stock to 'buy' from 'neutral' after hiking its price target to US$22 from US$18.50.

Canadian convenience store giant Alimentation Couche-Tard Inc (TSE:ATD.A) has been downgraded to 'neutral' from 'buy' by Eight Capital.

The strength of the Canadian dollar will put a dent in the value of overseas sales, the broker notes, and it thinks that the retailer is staring at reduced organic growth.

“Achieving consensus looks difficult without more M&A/synergies, a fuel margin rebound, or higher organic growth,” the broker said, as it cut its target price from C$77 to C$65. The shares currently trade at around C$61.

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