On Monday, BTIG initiated coverage on shares of Outset Medical Inc. (NASDAQ:OM), a company that markets the Tablo dialysis system, with a Buy rating and a price target of $6.00. The Tablo system is notable for its use in both acute and home dialysis settings, targeting an $11.4 billion U.S. total addressable market.
Outset Medical has experienced several challenges in the recent past, including a warning letter from the FDA, a protracted capital equipment sales cycle, and broader concerns within the MedTech sector. These factors contributed to a significant drop in the company's share value in 2023. Despite these setbacks, Outset Medical's shares currently trade at 0.2x next twelve months (NTM) enterprise value to sales (EV/Sales).
BTIG acknowledges that Outset Medical has been making strides to improve its financial health. The company has been working on enhancing its gross margin and reducing cash burn, with further cuts anticipated in 2024.
Analysts project potential positive developments for Outset Medical in the coming months, including a possible FDA clearance for TabloCart with Prefiltration around mid-year, an uptick in sales following the conversion of the longer capital expenditure cycle into purchases, year-over-year sales growth, a stable recurring revenue base, and an approximate 900 basis points improvement in gross margin.
The firm's outlook for Outset Medical is optimistic, citing a viable turnaround and a long cash runway that could support the company moving forward. BTIG's price target is based on a 2x EV/Sales multiple applied to their 12-24 month sales forecast, which is at the lower end of the MedTech small-cap comparison group. This conservative multiple reflects a balance between the company's growth potential and its current lack of profitability and debt burden.
InvestingPro Insights
As Outset Medical Inc. navigates through its challenges, real-time data from InvestingPro provides a nuanced view of the company's financial status. Currently, Outset Medical holds a market capitalization of $103.54 million, which signals a modest size within the MedTech sector. Despite facing headwinds, the company is trading at a low revenue valuation multiple, with a price-to-book ratio of just 0.84 as of the last twelve months ending Q4 2023. This suggests that the market may not be fully accounting for the company's assets relative to its share price.
InvestingPro Tips highlight that Outset Medical is trading near its 52-week low, with the stock price having fallen significantly over the last year. This could present an opportunity for investors who believe in the company's long-term prospects and turnaround efforts. Additionally, the company's liquid assets exceed its short-term obligations, which aligns with BTIG’s view of a long cash runway to support the company's future moves.
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