Profound Medical is a “Strong Buy” right now, Raymond James says

Raymond James analyst Rahul Sarugaser has revised his quarterly forecast downward for Profound Medical (Profound Medical Stock Quote, Chart, News TSX:PRN), but the bigger picture still looks great for the medical device company.

In a quarterly preview report to clients on Wednesday, Sarugaser reiterated his “Strong Buy” rating and C$35.00 target price for PRN, which at press time represented a projected return of 82.9 per cent.

Profound Medical is commercializing its TULSA-PRO image-guided therapeutic technology for the ablation of prostate tissue. The device, which combines real-time magnetic resonance imaging with transurethral ultrasound and closed-loop thermal feedback control, was last August given 510(k) clearance from the US FDA and PRN is currently marketing the device in the US.

Ahead of Profound’s first quarter 2020 results due on May 7, Sarugaser said he expects no new TULSA-PRO installations for the upcoming second quarter, due to COVID-19 travel restrictions, while he is calling for Q3 installations of two of three devices already sold to RadNet and then for three further installations in Q4 for a total of seven for the year.

Sarugaser has also reduced his forecasts for average number of patients treated per quarter in 2020 at 12 patients as opposed to the earlier estimate of 17 to 20 per quarter.

As for Sonalleve, the non-invasive treatment for uterine fibroids, Sarugaser is expecting the lockdown in China (PRN’s primary market for the device) has dropped the analyst’s Q1 and Q2 sales to zero and climbing to $1.0 million and $1.5 million in Q3 and Q4, respectively.

The lumpy quarterly revenue aside, Sarugaser said investors need to concentrate on the annual figures for the company’s performance.

“We sound like a broken record when we say that COVID-19 has had an impact on our coverage universe,” Sarugaser wrote. “It is important, however, to resolve the unique effect that this pandemic has had on PRN, specifically. We recently highlighted that because PRN’s TULSA-PRO procedure is primarily undertaken at imaging centres rather than hospitals, PRN is unlikely, in our view, to see a major hit in procedure rate (at least for its existing installed base). And, whatever reduction in procedure volume PRN does experience, we expect to come roaring back when self-isolation measures ease. This said, as always, we take a relatively conservative approach, and have fine-tuned our sales estimates for the remainder of 2020.”

Sarugaser is calling for Q1 2020 revenue of $1 million (previously $2 million), while for the full year, he is calling for revenue of $8 million (unchanged) and EBITDA of negative $25 million (unchanged). For fiscal 2021, the analyst is forecasting revenue of $22 million and an EBITDA loss of $23 million.

Sarugaser thinks PRN will have exited its first quarter with $53.2 million in cash, no debt and a quarterly burn of about $6.0 million.

Profound’s share price had a bang-up year in 2019, gaining 168 per cent in value. The stock is continuing its run in 2020, already up 31 per cent.