Research Capital launches coverage of Covalon with a “Buy” rating

Research Capital analyst Andre Uddin likes what he sees from Covalon Technologies (Covalon Technologies Stock Quote, Chart, News, Analysts, Financials TSX:COV).

In a research report to clients December 5, Uddin initiated coverage of Covalon with a “Buy” rating and price target of $3.80, implying a return of 15.8% at the time of publication.

“Covalon is a medical device company based in Mississauga, Ontario that markets its portfolio of medical devices for wound care, vascular access, and peri-operative consumables in the US, Canada, the Middle East, and Latin America – the US market is the primary focus,” he wrote. “As of Sept 2024, the company had C$16M in cash and zero debt. A significant portion of Covalon’s revenue is from their antimicrobial collagen dressings for treating advanced wounds. Over the next 5 years, we estimate that IV Clear, the world’s only silicon-based dressing for intravenous injection site, should provide COV with decent revenue growth. On Jan 4, 2024, Mr. Brent Ashton was appointed CEO, and under his leadership the company has reported two consecutive quarters with positive operating profit, adjusted EBITDA, and net profit. We attribute the turn around due to the CEO deciding to: (i) focus primarily on the US market, (ii) drive future sales growth from its vascular access portfolio where there is a greater opportunity and (iii) by a headcount reduction.”

Uddin thinks COV will post EPS of $0.13 on revenue of $32.0-million in fiscal 2024. He expects those numbers will improve to EPS of $0.04 on a topline of $36.0-million in fiscal 2025.

The analyst says COV’s diversified portfolio should fuel its growth.

“Covalon has a portfolio of medical devices that target three separate markets: 1) advanced wound care, 2) surgical and peri-operative products, and 3) vascular access,” Uddin added. “Currently, we estimate that the advanced wound care portfolio comprises more than 50% of Covalon’s total revenues which are mainly from the U.S. Lead product, ColActive Plus Ag, has a strong price advantage (yet has 60% gross margins) over competitors. Covalon’s vascular access portfolio is expected to provide solid growth in the next 5 years – we have assumed a 20% CAGR from 2025 to 2030. COV’s lead product, IV Clear, is the only product in the world that is based on silicone-based adhesives with dual antimicrobial agents (its competitors use acrylate adhesive with only a single microbial agent). IV Clear’s silicon adhesive is gentler and causes less skin damage than competitors’ acrylate adhesive. Our view is that IV Clear has a unique value proposition for children and babies whose skin is more sensitive and more susceptible to adhesion-related damage, and patients with impaired skin (oncology & geriatric patients).”