PI lowers price target on Prism Medical

A decline in margins has PI Financial analyst Jason Zandberg feeling a little less bullish about Prism Medical (Prism Medical Stock Quote, Chart, News: TSXV:PM).

On Monday, Prism Medical reported its fourth quarter and fiscal 2015 results. In the fourth quarter, the company earned $1.3-million on revenue of $16.4-million, a 29 per cent topline bump over the same period last year.

“We are pleased with the sales growth in our recent dealer acquisition in B.C., Angel Accessibility Inc., and the continuing increase in sales in our U.S. business as the U.S. market gradually accepts safe patient handling as best practice,” said CEO Ross Scavuzzo. “We also look forward to closing the previously announced acquisition of the lifts and elevating business from Shoppers Home Health Care (in Canada) on May 31, 2016.

Zandberg says a surging U.S. dollar hurt the margin on Prism’s Canadian sales, as did a reclassification of expenses from SG&A to COGS as the revenue mix that was ultimately weighted toward lower margin services. This had the analyst chopping some of his bottom-line expectations.

“Prism has reported losses in the last two quarters despite strong revenue growth,” notes Zandberg. “We believe the Company is adjusting to both acquisition integration as well as management changes (three CEO’s in last four months). We have confidence in Ross Scavuzzo, the current CEO, and feel that he has Prism headed in the right direction. We expect the US revenue to grow 15% this year whereas we assume Canadian sales will be flat (outside of the acquisitions made in FY15). Our gross margin assumption for FY16 and FY17 is 35% (previously 40%) due to revenue mix and using recently changed COGS calculation. Our new EPS forecast for FY16 and FY17 are $0.19 and $0.52 respectively (FY16 was previously $0.49 and FY17 estimates are new).”

In a research update to clients today, Zandberg maintained his “Buy” rating on Prism Medical, but lowered his one-year price target on the stock from $14.00 to $12.50. Shares of Prism closed Wednesday up 1.5 per cent to $9.95.