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Canaccord sees iRhythm stock long-term potential despite regulatory overhangs

EditorEmilio Ghigini
Published 09/25/2024, 06:10 AM
IRTC
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On Wednesday, Canaccord Genuity maintained a Buy rating on iRhythm Technologies (NASDAQ:IRTC) stock and increased the price target to $137 from $122. The adjustment follows a non-deal roadshow featuring iRhythm's newly appointed CFO, Dan Wilson, and VP IR, Stephanie Zhadkevich.

During the roadshow in Minneapolis, Chicago, and Milwaukee, the focus was on the company's dealings with the FDA and DOJ, as well as its financial performance.

Investors are anticipating more clarity from the FDA and DOJ regarding iRhythm within the next 30 to 60 days. This expectation is based on the pending FDA clearances of two 510(k)s submitted to address issues raised in last year's FDA Warning Letter. The resolution of these matters is expected to lift a significant burden from the company.

Additionally, the company is working on resolving recent 483 notices, a process that may take at least twelve months and will involve integrating certified cardiac technicians (CCTs) into the quality system.

Revenue growth drivers and margin levers were also discussed, with management indicating potential challenges in the third quarter of 2024 due to seasonal effects and higher expenses related to FDA remediation. Despite maintaining revenue estimates, Canaccord Genuity has adjusted gross margin and operating margin expectations, leading to a lower adjusted EBITDA forecast for 2024.

The firm notes that iRhythm's shares are currently trading at a 35% discount compared to its peers with similar revenue growth rates, due to the regulatory and legal issues.

Canaccord Genuity views the recent decline in stock price as a buying opportunity for long-term investors, particularly after the third quarter results are reported, which they believe could serve as a clearing event for the regulatory, legal, and financial uncertainties. The reaffirmed Buy rating and increased price target reflect this optimism.


InvestingPro Insights


As iRhythm Technologies (NASDAQ:IRTC) navigates through its current regulatory and legal challenges, investors are keeping a close eye on the company's financial health and market performance. According to InvestingPro data, iRhythm maintains a market capitalization of approximately $2.19 billion, with a notable revenue growth of 18.81% over the last twelve months as of Q2 2024. This growth is slightly above the quarterly revenue growth of 19.27% for Q2 2024, indicating a consistent upward trajectory.

Despite the positive revenue trends, iRhythm's profitability remains a concern, reflected in its negative P/E ratio of -16.44. This is further emphasized by InvestingPro Tips, which reveal that analysts have revised their earnings downwards for the upcoming period and do not anticipate the company to be profitable this year. Nevertheless, the company's liquid assets do exceed short-term obligations, providing some financial buffer. It's also worth noting that iRhythm operates with a moderate level of debt, which could be a mitigating factor in its overall financial stability.

Investors considering iRhythm as an opportunity should be aware that the company is trading at a high Price/Book multiple of 22.14, which suggests a premium valuation compared to its book value. Additionally, the stock is currently trading at 56.64% of its 52-week high, with a previous close price of $70.3. For those seeking more in-depth analysis, InvestingPro offers additional tips on iRhythm and other companies, which can be accessed for further guidance on investment decisions.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.

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