Ladenburg Thalmann upgraded Codexis (NASDAQ:CDXS) to “buy” from “neutral” with a new price target of $6.25. The shares were quoted at $4.65 in afternoon trading on Jan. 4.
Analyst Kevin DeGeeter cited growing confidence that the company will announce a CodeEvolver tech transfer agreement in 2017, financial guidance to be given in the first quarter may include material recurring revenues from partner, GlaxoSmithKline and a growing base of recurring revenue may result in re-valuation of Codexis’ shares and support multiple expansion.
“While we have limited visibility on the exact timing for a new CodeEvolver agreement, our discussions with pharmaceutical and biotechnology companies confirm a high level of interest in use of biocatalysts as a primary method to reduce COGS and offset potential margin contraction associated with pricing pressure on certain classes of small molecule therapeutics,” he added.
Based on existing contract service relationships with seven of the top 10 pharmaceutical companies and two previously signed CodeEvolver agreements with Glaxo and Merck, Mr. DeGeeter said he believes Codexis is well positioned to benefit from these trends.
“Lastly, we have long viewed Codexis as a unique pharmaceutical services restructuring story transitioning from a fee-for-service model to a licensing business model, with more recurring revenue and increased visibility on future revenue growth,” he added.
As recurring revenue becomes a larger portion of revenue mix, beginning in 2017 and accelerating in 2018, he expects investors to reward the improving revenue visibility with sustained multiple expansion to a range enjoyed by high margin pharmaceutical supply chain product companies.
