Canaccord Genuity has launched coverage of CryoLife (NYSE:CRY) with a “buy” rating and $14 yearend price target. The stock closed at $11 on Tuesday.
“We recommend small-cap GARP (growth at a reasonable price) investors build positions in CryoLife, which is actively building a cardiac surgery-focused company through targeted acquisitions that augment its strong, existing core franchise and strategic divestitures,” writes analyst Jason Mills.
He said his research suggests CryoLife’s revamped product portfolio, which is sold through a larger, more focused 50-plus person sales force – will illicit valuable cross-selling opportunities and stronger operating leverage possibilities.
“We expect revenue growth and operating margins to accelerate over the next few years, which we think will lift the value of the company accordingly,” he added.
Mr. Mills said the December 2015 acquisition of On-X represented the pivot point on which CryoLife sharpened its focus on the cardiac surgery market. The company also spun off its non-strategic, vascular product lines in recent months – HeRO Graft and ProCol – to sharpen its commercial focus and strengthen the balance sheet.
“Our analysis suggests the On-X acquisition, coupled with these two divestitures, creates a more coherent franchise that is better positioned to deliver faster revenue growth and more robust operating leverage,” he added.
Mr. Mills said On-X represents a best-in-class mechanical heart value (MVH), with which a larger sales forces and expanded global direct sales footprint can drive material share gains in the $220-million MVH market.
