Recent regulatory and industry developments are putting the wind at the back of TSO3 (TSX:TOS), says Canaccord Genuity analyst Neil Maruoka.
Recently, the Association for the Advancement of Medical Instrumentation reported conclusions from a stakeholder meeting that included representation from the CDC and the FDA and asserted support for the sterilization of endoscopes in a clinical setting.
Maruoka notes that this meeting follows on an FDA announcement in which that organization expressed its intention to require manufacturers of certain reusable medical devices, including endoscopes, to include validation data for cleaning, disinfection, and sterilization within all new 510(k) filings. The analyst says TSO3 is extremely well positioned, in light of these developments.
“Together, we believe this continues to support our view that both regulators and the industry are moving in the direction of sterilizing endoscopes,” Maruoka says. “Currently, only TSO3’s VP4 sterilizer is capable of sterilizing many of these longer, complex endoscopes; furthermore, we believe this underscores the importance of expanded claims that TSO3 is pursuing for sterilizing problematic duodenoscopes. Although the move towards endoscope sterilization will be gradual and take time, we continue to believe that VP4 has the potential to dominate the low-temperature sterilizer market. For those with a two- to three-year time horizon, we believe that fundamentals remain intact and we would recommend investors accumulate the stock at these levels.”
In a research update to clients today, Maruoka maintained his “Buy” rating and one-year price target of $5.25 on TSO3, implying a return of 93.7 per cent at the time of publication.
Abernethy thinks TSO3 will generate an EBITDA loss of (U.S.) $2.6-million on revenue of $23.8-million in fiscal 2017. He expects those numbers will improve to EBITDA of positive $13.8-million on a topline of $61.2-million the following year.