On Tuesday, Truist Securities adjusted its outlook on Inspire Medical Systems (NYSE:INSP), lowering the price target to $217 from the previous $280. The firm sustained its Buy rating on the stock.
Truist's revised price target is based on the expectation that Inspire Medical can trade at approximately 6.5 times enterprise value to sales (EV/Sales) on the firm's estimated 2025 revenue of around $946 million. This valuation is slightly below the high growth peer group average of roughly 7.1 times 2025 EV/Sales.
According to the analyst from Truist, Inspire Medical is expected to trade closer to, if not higher than, its peer group due to its faster revenue growth and above-average gross margin (GM) profile, along with an inflection in profitability. The analyst highlighted that peers at the higher end of Inspire Medical's comparable set range trade between 7 to 16 times.
Given Inspire Medical’s above-average growth, gross margin, a large untapped total addressable market (TAM), and an inflecting profitability profile, the analyst believes the company deserves a one-year forward multiple closer to the upper end of its peer range.
The reduction in the price target to $217 reflects several factors, including a lower terminal value in the discounted cash flow (DCF) analysis to account for potential risks in out-year TAM realization. This potential risk is associated with GLP1 trialing, which might cause some patients to drop out of the funnel.
Additionally, there is a possibility of further deceleration in U.S. utilization growth, which may take time to rebound due to capacity expansion efforts impacting beyond 2025.
The analyst also pointed out that the lower 2025 U.S. sales forecasts were partially offset by higher anticipated sales outside of the United States (OUS). This adjustment takes into account the impact of capacity utilization and potential competitive trials that may temporarily affect growth during 2025.
Furthermore, Truist has moderated its 2025 forecasts to reflect a slower year-over-year U.S. utilization growth rate.
In other recent news, Inspire Medical Systems has seen a flurry of activity from various analysts. Baird revised the company's price target to $220, maintaining an Outperform rating, with expectations of a slight beat on Q2 top-line revenue and continued growth in utilization.
Mizuho Securities also adjusted its outlook, reducing the price target to $200, yet keeping an Outperform rating following comprehensive Q2 checks and analysis.
BofA Securities cut its price target from $225 to $185 due to projected deceleration in revenue growth but maintained a Neutral rating. Oppenheimer, addressing debates surrounding the efficacy of hypoglossal nerve stimulation therapy, maintained its Perform rating on Inspire Medical Systems.
Meanwhile, Piper Sandler increased its price target to $255, emphasizing healthy underlying business trends and viewing any weakness in the stock price as a potential buying opportunity.
InvestingPro Insights
Investors seeking to gauge the potential of Inspire Medical Systems can consider several metrics and tips from InvestingPro. Notably, the company holds more cash than debt on its balance sheet, which may provide financial flexibility and resilience. Additionally, analysts predict the company will be profitable this year, aligning with Truist Securities' outlook on the inflection in profitability. From a valuation perspective, Inspire Medical is currently trading at a high Price / Book multiple of 6.99, which suggests investor confidence in the company's asset value relative to its share price.
On the performance front, despite recent pressures, the company's revenue growth remains robust, with a 41.71% increase over the last twelve months as of Q1 2024. Moreover, the gross profit margin stands at an impressive 84.65%, reinforcing the company's strong profitability potential as highlighted by Truist analysts. However, it's worth noting that the stock has experienced a significant price drop over the last three months, which could present a buying opportunity for long-term investors who believe in the company's fundamentals.
For those looking for a deeper dive into Inspire Medical Systems, InvestingPro offers additional insights and metrics. Use the coupon code PRONEWS24 to get up to 10% off a yearly Pro and a yearly or biyearly Pro+ subscription, and unlock a comprehensive list of 11 InvestingPro Tips to inform your investment strategy.
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