RBC Capital Markets upgraded CRH Medical (TSX:CRH; NYSE MKT:CRHM) to “outperform” from “sector perform” but lowered its price target to $6 (Canadian) from $8.50. The stock closed at $4.07 on July 20.
Analyst Doug Miehm writes that CMS has released its proposed 2018 Physician Fee Schedule, which included a 20% reduction in the relative value units for anesthesia services in colonoscopies.
“While we believe revenue and EBITDA will come under pressure, we view the shares as fundamentally undervalued,” he added.
Mr. Miehm said that while he downgraded the shares in late-2016 on valuation concerns when trading at $8.38, we now view the shares as attractively valued and “as such believe the reimbursement cuts are more than reflected.”
He views his revised outlook as “conservative as we incorporate a further one unit cut in screening colonoscopies in 2019 and assume no M&A.” In addition, he said his base case values the company in-line with peers.
