Profound Medical downgraded at Mackie Research

A stock that has been on fire has Mackie Research Capital analyst Andre Uddin downgrading Profound Medical Corp (Profound Medical Corp Stock Quote, Chart, News TSX:PRN), while simultaneously raising his price target on the stock.

In a research update to clients today, Uddin changed his rating on PRN from “Specualtive Buy” to “Hold”, while raising his one-year price target on the stock from $20.30 to $26.10.

The analyst explained the reasoning behind the rare move.

“We are downgrading PRN from SPECULATIVE BUY to HOLD as we believe the stock has been fully valued by the market – PRN has been up 197% since the 510k clearance in August 2019,” Uddin explained. “We are raising our 12-month target price from C$20.30 to C$26.10 after incorporating the recent US$40M equity financing and the C$12.5M debt repayment into our model. Our valuation is based on applying a 7.0x 2020 EV/Sales (was 6.0x) to our 2021 revenue estimate of C$62.3M – we are using a higher multiple as: (i) PRN is launching TULSA-PRO (a novel product) in the U.S. and (ii) the company has strengthened its balance sheet.”

Uddin says Profound, a medical device company with two products, TULSA-PRO, for localized prostate cancer, and Sonalleve, for uterine fibroids, is in a solid position fundamentally, with a strong balance sheet.

“PRN had C$27M in cash in Q3. On Jan. 27th, PRN completed a US$40M equity financing @ US$11.65/share (3.4M common shares) to fund the U.S. launch of TULSA-PRO and continued marketing of the product and Sonalleve in EU and ROW. On Feb. 4th, PRN announced it had fully repaid $12.5M in debt due on Jul. 29th, 2022 – which should save C$0.9M in interest payments in total. Based on the two developments, we have revised our model. We believe PRN’s strong balance sheet should provide the company with financial flexibility to support further growth,”he said.

Uddin thinks PRN will generate fully diluted EPS of negative $1.86 on revenue of $5.4-million in fiscal 2019. He expects those numbers will improve to Fully Diluted EPS of negative $0.84 on a topline of $23.0-million the following fiscal year.

The analyst said the company is poised to drive recurring revenue in the United States.

“PRN is currently working on two fronts to drive utilization of TULSA-PRO in the U.S. – forging commercial agreements with healthcare institutions and seeking broad insurance coverage,” Uddin wrote. “The company is to install TULSA-PRO at least 3 RadNet imaging centers in Los Angeles this year. We also expect PRN to secure more commercial agreements with other imaging centers, leading hospitals and/or urological clinics. In terms of reimbursement, PRN expects to obtain the temporary “CCode” in Jul. 2020, which would provide 3-year coverage – a patient would pay US$2k – 4k out-of-pocket fees for a TULSA-PRO procedure. PRN is to initiate several clinical trials in 2020 to help apply for a permanent, specific CPT code.”