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Genzyme (GENZ) has been under a lot of pressure over the past few quarters following the temporary shutdown of its Allston manufacturing facility due to contamination problems.

While we are pleased to see that Genzyme is taking steps to emerge from the impact of the temporary shutdown of the Allston plant, we believe that the company may have to face additional challenges before it is able to go back to a normal production and supply schedule.

Moreover, the FDA is looking to enforce a consent decree on the company which would result in Genzyme incurring additional costs.

Genzyme s current trailing 12-month earnings multiple is 41.6, compared to the 23.1 average for the peer group and 29.3 for the S&P 500. Over the last five years, Genzyme s shares have traded in a range of 15X to 38X trailing 12-month earnings. The stock is currently trading at 27.0x the 2010 Zacks Consensus earnings estimate.

With the company yet to emerge fully from its manufacturing issues, we are downgrading the stock to “Underperform” with a target price of $47, based on 24.4x the 2010 Zacks Consensus earnings estimate.

Although Genzyme could receive some positive news in the form of FDA approval of Lumizyme, we expect investor focus to remain on the emerging pipeline, updates regarding the supply schedule of Cerezyme and Fabrazyme, the FDA s enforcement action and updated guidance.

[Zacks target price of $47 is on the low end of the $43-$78 range and compares with a median analyst target price of $59.50 reported by Thomson FirstCall. Most recently, Piper Jaffray upgraded Genzyme from "Neutral" to "Overweight" on April 22. Genzyme closed just below $52 on May 12.]

Source: Zacks Downgrades Genzyme to 'Underperform'