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On Monday, BofA Securities issued a new rating for Zai Lab (NASDAQ:ZLAB), downgrading the stock from Buy to Neutral while simultaneously increasing the price target from $29.00 to $36.10. The revision comes as the firm maintains its 2025-26 revenue estimates for Zai Lab but enhances its revenue forecast by over 5% starting from 2027. The stock has shown remarkable momentum, with InvestingPro data showing a 79% surge over the past six months, though technical indicators suggest the stock may be in overbought territory.
The updated assessment by BofA Securities takes into account several factors influencing Zai Lab’s performance. A key point made by the analysts is the soft performance of Zejula/Optune, which has led to a tempered outlook for the company’s near-term growth. However, they also note the promising sales ramp-up of VYVGART and the progress in the pipeline, including the addition of sales estimates for AUGTYRO for NTRK+ solid tumor indication. Recent financial data from InvestingPro reveals impressive revenue growth of nearly 50% over the last twelve months, despite challenging gross profit margins of just 4.17%.
BofA Securities has adjusted its financial models for Zai Lab, reflecting this new outlook. The observed beta was updated to 1.28 from 1.4, according to data from Bloomberg. Additionally, the weighted average cost of capital (WACC) was revised to 12.5% from the previous 13.3%. These changes underpin the raised price objective to $36.10, up from the former target of $29.00.
Despite the downgrade to a Neutral rating, BofA Securities acknowledges the solid progress in Zai Lab’s pipeline development. This includes the potential of Optune for the pancreatic cancer indication, KarXT, and Bemarituzumab. The analysts suggest that the growth slowdown of core products is a concern, yet this is balanced by the advancements in the pipeline.
Investors are now watching Zai Lab as it navigates through a period where the anticipated positive news may already be reflected in the current stock price, according to BofA Securities. With the new price target set, market participants will likely monitor how Zai Lab’s stock responds to the evolving landscape of its product offerings and pipeline developments. For deeper insights into Zai Lab’s valuation and growth prospects, InvestingPro offers comprehensive analysis through its Pro Research Report, including detailed financial health scores and 12 additional ProTips that help investors make informed decisions.
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