On Friday, RBC Capital Markets adjusted its stance on Outset Medical Inc. (NASDAQ:OM), raising the stock's rating to Outperform from Sector Perform and increasing the price target to $6.00, up from the previous $5.00. Outset Medical's shares are currently perceived to be undervalued, trading at a significant discount compared to historical norms and below the company's cash per share value.
The firm's analysis points out that Outset Medical's stock is trading at 1.0 times next twelve months (NTM) Sales, which is substantially lower than its 5-year average, excluding the Covid period, of approximately 3.5 times.
The new price target is based on a 1.5 times enterprise value to sales (EV/Sales) multiple on the firm's 2025 sales estimate. Despite the conservative nature of this valuation, the potential for upside is seen as substantial, especially given that the stock closed at $3.59 on June 20, which is below the cash per share price of $4.46.
Interest in Outset Medical has been limited but positive, with investors looking to take advantage of the current market dislocation. Although the stock has declined by 33% this year, it has rebounded by 64% this quarter. This recovery is attributed to the approval of the Tablo Cart, which is expected to catalyze a resurgence in sales of the Tablo console, aligning with previous trends.
RBC Capital anticipates that Outset Medical will return to significant growth in the second half of 2024 due to favorable comparative figures from the previous year and forecasts high-teens growth for the period of 2025 to 2027. Alongside this growth, the company's profitability is also expected to improve. These factors underpin the decision to upgrade the stock and raise the price target.
In other recent news, Outset Medical reported a first-quarter revenue of $28.2 million, affected by a TabloCart ship hold and a cyberattack. Despite these setbacks, the company anticipates meeting its annual guidance following a rebound in treatment ordering.
Outset Medical has announced a significant restructuring plan to reduce cash use by over $100 million through 2027, aiming for cash flow breakeven earlier without additional capital. This plan underscores the company's commitment to its recurring revenue model and market expansion.
The company maintains a positive outlook for annual revenue growth in the high-teens between 2025 and 2027. Over 200 Tablo consoles are in use in subacute settings, indicating significant growth potential. The company also expects the TabloCart to drive sales growth in the latter half of the year.
Outset Medical has reaffirmed its revenue and gross margin guidance for the full year 2024 and anticipates reaching cash flow breakeven earlier than previously expected. These recent developments underscore the company's resilience and strategic focus amidst external challenges.
InvestingPro Insights
With Outset Medical Inc. (NASDAQ:OM) receiving an updated outlook from RBC Capital Markets, it's essential to consider various financial metrics and analyst insights that can provide further context to investors. According to InvestingPro data, Outset Medical has a market capitalization of $185.42 million, reflecting its current valuation in the market.
The company's revenue for the last twelve months as of Q1 2024 stands at $125.08 million, with a gross profit of $30.79 million, indicating a gross profit margin of 24.61%. Despite these figures, the company's operating income margin is reported at -130.48%, which underscores the challenges it faces in achieving profitability.
InvestingPro Tips suggest that while analysts have revised their earnings upwards for the upcoming period, they do not anticipate the company will be profitable this year. This aligns with the negative P/E ratio of -1.1, which further indicates that earnings are currently not keeping pace with the company's share price.
Moreover, the stock's price movements have been quite volatile, with a significant drop of 83.48% over the past year, but a strong return of 71.53% over the last three months. This volatility may present opportunities for investors with a high tolerance for risk.
For those considering an investment in Outset Medical, it's worth noting that the company does not pay a dividend to shareholders, which may influence the investment decisions of those seeking regular income streams. Furthermore, with liquid assets exceeding short-term obligations, the company maintains a solid liquidity position.
Investors interested in a more comprehensive analysis can find additional InvestingPro Tips at https://www.investing.com/pro/OM. There are currently 11 additional tips available, which can provide deeper insights into Outset Medical's financial health and prospects. To access these tips, use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.