Paradigm Capital analyst Corey Hammill likes the long-term forecast for medical device company Profound Medical (Profound Medical Stock Quote, Chart, News TSX:PRN) and has a new target price for it.
In an update to clients on Wednesday, Hammill upped his target price for the stock, saying the company’s recurring revenue coupled with a large and still growing market in the US for its products make for a winning combination.
Mississauga-based Profound Medical is currently commercializing its novel non-invasive, image-guided therapeutic technologies which include the TULSA-PRO for the ablation of prostate tissue (with fewer side effects than the current standard of care) and the Sonalleve therapeutic platform for the treatment of uterine fibroids and palliative pain treatment of bone metastases.
Earlier in August of this year, Profound announced that it had received 510(k) clearance from the US FDA to market the TULSA-PRO. Now, the company has outlined more about the US rollout, its commercialization and pricing strategies. According to Hammill, along with the traditional capital equipment purchase and disposables model, Profound will be offering a pay-per-use option where units are provided to facilities at no upfront cost but pay a recurring fee for each procedure, in addition to costs of disposables.
Hammill says the pay-per-use approach will increase long-term revenue and valuation for PRN, saying that although pay-per-use generates lower revenue in the short term owing to the lack of upfront payment, the longer-term revenue is better. And thus, the analyst is revising his forecasts accordingly.
“PRN’s long-term value is clear, driven by the TULSA-PRO`s ability to provide effective treatment with fewer adverse-events in the treatment of prostate cancer and BPH,” writes Hammill.
“Their different payment models offer a chance for rapid uptake of this technology, and the pay-per-use model establishes a second significant source of recurring revenue alongside the revenue generated from disposable sales. While the company will operate at a loss next year while building its sales force and running clinical trials to support insurance reimbursement, the long-term and recurring revenue create a compelling investment opportunity,” he says.
Hammill is expecting fiscal 2019 revenue, EBITDA and EPS of $3.7 million, negative $17.3 million and negative $1.90 per share, respectively, and fiscal 2020 revenue, EBITDA and EPS of $8.2 million, negative $21.0 million and negative $2.20 per share, respectively.
The analyst is reasserting his “Buy” rating while increasing his target price from $40.00 to $45.00, which represented a projected 12-month return of 254 per cent at the time of publication.
Profound, which underwent a ten-for-one share consolidation on October 16, has since seen a jump in share price, rising 33 per cent over the past few weeks. The stock began trading on the Nasdaq exchange on October 29 under the ticker PROF.
“The United States is a key target market for the TULSA-PRO system, which recently received 510(k) clearance from the US Food and Drug Administration, and many of our shareholders are US-based,” said Profound’s CEO, Dr. Arun Menawat, in an October 28 press release. “As we launch TULSA-PRO in the US, we view this Nasdaq listing as a natural extension of our growth plan.”