Stifel upgraded Cutera (NASDAQ:CUTR) to “buy” from “hold” with a $26 price target, citing a solid product pipeline, compelling valuation and a recently strengthened balance sheet. The stock closed at $12.90 on May 4.
Analyst Jonathan Block writes that despite the uncertain prospects for the aesthetics industry in the immediate term, “our upgrade of Cutera is not predicated on what may, or may not, occur over the next three-to-six months, but rather our expectations for momentum building into 2021 and beyond despite a stock still hovering near COVID-19 lows.”
Mr. Block said he expects Cutera’s strengthening story to be aided by a modestly improving outlook for the aesthetics industry, but “more attributable to company-specific initiatives, such as the company’s current products (truSculpt iD/flex) and future pipeline (acne), recurring revenue continuing to increase as a percent of sales from 17% in 2017 to 34% in 2022 and margin improvement.”
Based on several metrics, he said Cutera’s current valuation is attractive. The stock is trading at a multiple of 1.1 times actual revenue in 2019 and only 1.0 times estimated sales in 2021.
Mr. Block said the valuation reflects a recent equity raise of about $27-million, which when coupled with $7-million from the paycheck protection program for small businesses, “should provide the company’s balance sheet flexibility amid the COVID-19 slowdown.”
In addition, “we view the robust amount of inside buying both pre- and post-COVID-19 outbreak as a bullish sign for the stock longer-term,” Mr. Block added.
