Medidata gets second downgrade this week amid reported interest from Dassault
SunTrust analyst Sandy Draper downgraded Medidata (MDSO) to Hold saying he sees "limited upside from fundamentals or multiple expansion" for the stock. On Tuesday, Wells Fargo analyst Jamie Stockton also cut his rating on the shares to Market Perform as he believes any potential takeover deal "could be months away if ever." Both downgrades follow a media report saying Dassault Systemes (DASTY) is seeking U.S. acquisitions and considering targets, including Medidata. MOVING TO THE SIDELINES: In a research note to investors, SunTrust's Draper downgraded Medidata to Hold, while keeping a $79 price target, as he views "limited upside from fundamentals or multiple expansion" for the stock. Draper added that after a 30% year-to-date rally in the stock price, the fundamental outlook on the stock appears to be "fairly priced in," and while he assigns a $85-$100 per share potential takeout range, he lacks conviction that a transaction for Medidata will occur. Nonetheless, the analyst acknowledged that he remains "constructive" on the company's longer-term growth prospects. On Tuesday, Wells Fargo's Stockton also downgraded Medidata to Market Perform from Outperform, with a $90 price target. Given a moderately slowing organic growth rate and a lack of significant insider selling in 2018-2019 by the CEO and President, Medidata pursuing a takeout makes sense, Stockton contended. However, the analyst believes that a potential deal with Dassault sounds like it could be months away if ever. Further, while an acquirer might be willing to pay a premium for the rich set of clinical trial data Medidata has spent years gathering and curating, he believes this is "a good place to move to the sideline." TAKEOUT INTEREST: Over the weekend, Bloomberg's Manuel Baigorri, Ruth David and Dinesh Nair reported that Dassault Systemes is seeking U.S. acquisitions and considering targets, including Medidata, as it looks to bolster its life science unit, Deliberations are preliminary and the French software maker may decide against proceeding with a takeover or opt for a different company, the publication noted, citing people familiar with the matter. Medidata could also draw interest from other suitors, one of the people said. During Dassault's earnings call this morning, CEO Bernard Charles said that it was "a good practice to not comment so much on rumors." Nonetheless, he added that, "If you look back at the moves we have done in the last years, I think they were aligned with the strategy on innovative. [...] The success we are seeing on the R&D with BIOVIA on 3D EXPERIENCE give us some very interesting perspective about the life science market at large, for two reasons. Biologics are complex, and for us connecting with manufacturing is a differentiator and there are not many players in town on that. [...] we have to find out what is the best way to expand the solutions in the future on that side as we did for other sectors. So, let's see." To conclude the call, the company's vice president of IR, Francois-Jose Bordonado, said according to a transcript: "We're in good shape for the full year 2019...And don't push too much the rumors." PRICE ACTION: In afternoon trading, shares of Medidata are up almost 2% to $89.29, while Dassault's stock has advanced about 4% to $158.76.