Paragon 28 stock rating downgraded to Hold at Needham

On Wednesday, Needham analysts revised their rating on Paragon 28 , Inc. (NYSE:FNA) stock, downgrading it from "Buy" to "Hold." According to InvestingPro data, the stock has shown strong momentum with a 38% return over the past six months, though its RSI indicates overbought territory. The adjustment followed the announcement that Zimmer Biomet Holdings, Inc. (NYSE:ZBH) has entered into an agreement to acquire Paragon 28 for an approximate enterprise value of $1.2 billion. This transaction also includes a contingent value right, which could add up to an additional $85 million or $1.00 per share if fully realized.

The acquisition terms indicate that Zimmer Biomet is paying roughly four times Paragon 28’s projected 2025 consensus revenue, a valuation that aligns with the median 2025E EV/sales multiple of 4.1x for the small and mid-cap growth companies in the sector. InvestingPro data shows Paragon 28’s strong financial position with a current ratio of 3.5 and revenue growth of 18% in the last twelve months. Get access to 8 more exclusive ProTips and comprehensive valuation metrics with InvestingPro. Despite the deal’s valuation being lower than expectations, the list of potential buyers was limited, and while the possibility of a higher offer exists, analysts believe it to be improbable.

Paragon 28 and Zimmer Biomet both have a relatively low market share in the $5 billion foot and ankle market, with a combined estimate in the high single digits. Given this market position, analysts do not foresee any antitrust issues arising from the merger.

The downgrade to "Hold" reflects the current situation, where the acquisition offer has been made, and the likelihood of further stock appreciation based on a higher bid is considered low. For detailed analysis of the acquisition’s impact and future prospects, access the comprehensive Pro Research Report available exclusively on InvestingPro, covering what matters most about Paragon 28’s financial health and market position. This rating change provides current shareholders and potential investors with an updated outlook on Paragon 28 stock following the recent acquisition news.

In other recent news, Paragon 28 has been acquired by Zimmer Biomet in a cash transaction valuing the company at approximately $1.1 billion. The acquisition was completed at around $13 per share, reflecting Paragon 28’s strong revenue growth of 18.2% over the last twelve months. JMP Securities, which rates both companies as Market-Outperform, highlighted Paragon 28’s financial growth and strong liquidity position as factors that positioned it as a strong acquisition candidate.

Paragon 28 has also reported strong growth in revenue for the fourth quarter and the full year of 2024. According to estimates, the company’s fourth-quarter revenue is expected to be between $71.5 million and $71.8 million, a significant 18-19% increase year-over-year. This surpasses the consensus estimate of $69.6 million. For the entire year, the revenue is anticipated to be within the range of $255.9 million to $256.2 million, indicating similar growth.

Analysts from Needham have maintained a Buy rating on the company’s shares, reflecting confidence in Paragon 28’s momentum and growth potential. Despite not providing revenue guidance for 2025, the consensus estimate for 2025 revenue stands at $292 million, hinting at an estimated growth of 14%. These developments, including the launch of 13 new products, demonstrate the company’s commitment to continued growth and operational efficiency.

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