TSO3 is still undervalued, says Laurentian

Following the company’s second quarter results, Laurentian Bank Securities analyst Nick Agostino has maintained his “Buy (Speculative)” rating on TSO3 (TSO3 Stock Quote, Chart, News: TSX:TOS).

Yesterday TSO3 reported its Q2, 2016 results. The company lost (U.S) $1.48-million on revenue of $3.0-million.

“Q2 was another strong quarter with shipments of our Sterizone VP4 sterilizers, enhanced regulatory claims and a complete redesign of our assembly operations,” said CEO R.M. (Ric) Rumble. “We have made significant improvements in our potential while leading a disciplined core operation.”

Agostino says TSO3’s shipments came in ahead of his expectations but profitability was softer than he expected. He says the weakness was due to research and development expenses related to VP4 customization in Europe, and because of extended claims studies for the product. But the analyst says the upside is that TSO3 has maintained its leadership position in the space.

“Technology continues to dominate,” says Agostino. “On the (quarterly conference) call it was noted that batteries and orthopedic equipment may be sterilized in the VP4, implying further efficiencies over current practice for these items which require both steam and high temperature sterilization equipment. This validation may allow TSO3 to gain share from the mature steam market. As a push back on TSO3’s competitive threat, the company noted it is seeing some price discounting from competitors (on replacement units). TSO3 plans to hold the line, reflecting its technology edge.”

In a research update to clients today, Agostino maintained his “Buy (Speculative)” rating and one-year target price of $5.00 on TSO3, implying a return of 46.2 per cent at the time of publication.

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