Revenue growth remains strong for Mindray Medical, but Jefferies & Co. lowered its rating on the stock, saying that high spending by the Chinese medical device maker is hampering profitability.
Analyst Raj Denhoy said the company's growth in China remains strong, but its U.S. business has been "less than stellar." The analyst added that a recent warning letter from the Food and Drug Administration and inquiries from the Securities and Exchange Commission create open-ended risks for investors.
He downgraded shares of Mindray to "hold" from "buy."
Mindray's business includes patient monitoring and life support products, medical imaging systems and in-vitro diagnostic products.
The company's home market of China grew 26 percent last year, and that country makes up 45 percent of Mindray's sales, Denhoy said. He expects topline growth to remain high, but Chinese manufacturing and labor costs are climbing, and Mindray plans more spending on growth initiatives this year.
"While results, particularly out of China, remain strong, higher spending is hampering margin gains," the analyst wrote Wednesday, adding that the company's North American business has seen a dramatic slowdown.
Denhoy raised his price target to $43 from $36, however.
U.S.-traded shares of Mindray Medical International Ltd., closed at $38.60 on Wednesday. The stock is up 18 percent so far this year.