Paradigm cuts price target on Profound Medical stock

After reviewing the third quarter financials from med tech company Profound Medical (Profound Medical Stock Quote, Charts, News, Analysts, Financials NASDAQ:PROF), analyst Scott McAuley of Paradigm Capital stuck with his “Buy” rating on the stock in a Monday report to clients. But McAuley has lowered his target price from $17.00 to $12.00 on dimmer visibility of the company’s pipeline of installations for its TULSA-PRO system in the US.

Profound Medical, which is marketing the TULSA-PRO incision-free therapy for the ablation of tissue for prostate cancer treatment, announced its third quarter 2022 financials on November 3, featuring $2.2 million in net revenue compared to $2.5 million a year earlier and an EBITDA loss of $7.9 million compared to a loss of $5.1 million a year ago. The company reported six new installations of the TULSA-PRO in recent months, bringing its total to 30 installations. (All figures in US dollars.)

“As clinical data continue to demonstrate that TULSA is the best modality when it comes to prostate cancer treatment outcomes and side effects and more physicians learn of our technology’s flexibility to treat an unrivalled variety of prostate disease patients, our confidence is growing in its potential to change the current standard of care,” said CEO and Chairman Dr. Arun Menawat in a press release.

“Among the keys to reaching that level of long-term success will be continuing to expand our installed base of TULSA-PRO systems and helping to drive increased per-site utilization,” Menawat said.

McAulay said Profound’s topline of $2.0 million was a little under his forecast of $2.2 million, while the negative $6.7 million in EBITDA was better than his forecast at negative $7.9 million. 

McAuley lowered his assumptions going forward on the pace of new installations of the TULSA PRO in 2023 and beyond due to lack of visibility in the pipeline. The analyst’s new projections have PROF generating full 2022 revenue of $7.9 million (previously $8.1 million) and 2023 revenue of $16.2 million (previously $30.3 million), with 2022 EBITDA at negative $24.6 million (previously negative $27.6 million) and 2023 EBITDA at negative $22.6 million (previously negative $11.0 million).

“We are maintaining our Buy rating while lowering our target to $12.00 (was $17.00). Our valuation is based on a DCF to 2026 on the TULSA-PRO. Given the significant sell-off over the past few months, PROF is now trading below peers on current 2023 consensus estimates at 2.9x versus a median of 5.0x,” McAuley said.

“However, given the rollout challenges to date, it may take another quarter or two of strong installations to regain investor confidence. Longer term, we continue to see TULSA-PRO as a significant advancement in treatment of prostate disease and believe its pay-per-use economics will deliver value to investors,” he said.

At the time of publication, McAuley’s new $12.00 target represented a projected one-year return of 158 per cent.