IMRIS is still undervalued, says Paradigm

An overdue capital refresh cycle at hospitals is a likely catalyst for medical imaging leader IMRIS (TSX:IM), says Paradigm Capital analyst Alan Ridgeway.

On Friday, IMRIS reported its second quarter, 2014 results. The company lost (US) $7.02-million on revenue of $4.3-million. The topline was down 58% from the $10.2-million the company delivered in the same period last year, but the company trimmed its loss from $8.2-million in Q2, 2013.

CEO Jay Miller focused on the company’s improving bookings.

“Revenue in the 2014 second quarter came in above our guidance range, reflecting our continued focus on building revenues from service contracts, disposables and upgrades, in addition to VISIUS sales,” he said. We are encouraged by the gains in order bookings and backlog during the second quarter and first half of the year. We are beginning to benefit from the steady stream of positive clinical data from hospitals that use our intraoperative imaging technology. As we have stated, a primary 2014 focus is to improve order bookings performance and convert qualified customer prospects to new sales orders.

Ridgeway says the quarter sent “mixed messages” as it was an improved one for systems orders, but also included management decreasing its revenue guidance from the $44-46-million level to $30-34-million. He notes that IMRIS’s product sales experienced a slow down in 2011 and have yet to recover. But given that fact, the analyst believes that the stock’s current level is reflecting what many expect to be a weak year, and not the opportunities beyond 2014, which he expects will improve because of an expected upgrade cycle in hospitals.

In a research update to clients Friday, Ridgeway reiterated his “Buy” rating and $2.00 one-year target on IMRIS, implying a 125% return at the time of publication.