Research Capital likes this Canadian healthcare stock
Research Capital analyst Andre Uddin maintained a “Buy” rating and C$2.90 target on Covalon Technologies (Covalon Technologies Stock Quote, Chart, News, Analysts, Financials TSXV:COV) in a May 21 update after second-quarter results showed revenue growth and stronger-than-expected profitability.
Uddin said the target reflects lower valuation multiples across the global wound-care sector, while the stock’s recent weakness has followed several quarters of softer-than-expected sales.
“Covalon’s stock has been trading down for the past five quarters, reflecting the company’s weaker-than-expected sales — revenues came in lighter than we expected this quarter, but growth was achieved,” Uddin said.
Covalon reported Q2 revenue of $8.7-million, up 15% year-over-year but below Uddin’s $9.3-million estimate. Adjusted EBITDA was $1.3-million, ahead of his $1.0-million forecast, while net income was $1.1-million, or $0.04 per share. The company ended the quarter with $16.6-million in cash and no debt.
Uddin said gross margin of 61% was above his 56% estimate and remains well ahead of many large medical device peers.
The analyst said Covalon is gaining traction with its infection-management portfolio, including VALGuard Line Guard and CovaClear Cover dressings, with adoption at major healthcare customers, including Stanford Health Care and Children’s Hospital of Philadelphia.
“We continue to believe COV’s infection management portfolio could be the most significant driver of growth over the next five years,” Uddin said.
Uddin expects Covalon to generate Adjusted EBITDA of $3.8-million on revenue of $35.2-million in fiscal 2026, improving to $4.9-million on revenue of $39.9-million in fiscal 2027.
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Tara Whittet
Writer
Tara Whittet is Senior Sales Manager at Cantech Letter.