New Bone Marrow Application Will Open Markets After CE-Mark Approval In 2025

Key Takeaways

• Strategic alliances and innovation in digital cell morphology technology may drive significant revenue and profit margin growth.
  
• Diversification into cytology, pathology, and reagents, alongside market expansion efforts, could enhance revenue and overall financial stability.
  
• Mixed regional performance, regulatory challenges, and strategic R&D investments are creating revenue and cash flow pressure, with potential delays in new product launches and growth.

Catalysts

Develops and sells instruments, software, and reagents for blood and body fluids analysis in Sweden and internationally.

• The strategic alliance with Sysmex Corporation is expected to enhance commercialization efforts and expand digital cell morphology solutions, which could drive revenue growth as the alignment deepens and product launches accelerate together.
  
• CellaVision's investment in the next-generation digital cell morphology analyzer, including the adoption of ptychographic microscopy technology, indicates a robust innovation pipeline that could boost future revenues and profit margins as these advanced systems begin to sell.
  
• The pending CE-mark for the bone marrow application, anticipated by the end of 2025, could open new markets and drive revenue growth if the clinical trials and data prove successful.
  
• Increased focus on diversifying into adjacent areas such as cytology and pathology, as well as the globalization of their reagent business, could lead to revenue growth and potential margin improvements.
  
• A potential recovery in the Americas market following the current order lag could stimulate future sales, positively impacting revenue and cash flow as installations increase and market conditions stabilize.

CellaVision Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming CellaVision's revenue will grow by 13.0% annually over the next 3 years.
• Analysts assume that profit margins will increase from 19.5% today to 25.0% in 3 years time.
• Analysts expect earnings to reach SEK 260.8 million (and earnings per share of SEK 10.94) by about March 2028, up from SEK 140.7 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 25.0x on those 2028 earnings, down from 29.3x today. This future PE is lower than the current PE for the GB Medical Equipment industry at 28.7x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 5.32%, as per the Simply Wall St company report.

CellaVision Future Earnings Per Share Growth

Risks

• The report indicates mixed regional performance, with negative growth in the Americas and decline in EMEA which could affect future revenue consistency and stability.
  
• The installation and order timing delays in the Americas, particularly due to dependencies on hospital readiness and Sysmex's installation schedules, risk impacting revenue recognition and cash flow timing.
  
• The increased operating expenses and significant investments in R&D, while strategic, have placed pressure on margins, reflected by the lower EBITDA margin despite a solid gross margin.
  
• Regulatory challenges and delays in obtaining CE-mark for new products such as the bone marrow application could delay product launches and subsequent revenue streams.
  
• The investment phase focused on innovation and next-gen instrumentation, while necessary, constrains cash flow and may not translate into immediate revenue and earnings growth, emphasizing a risk of prolonged financial pressure.

Valuation

• The analysts have a consensus price target of SEK242.5 for CellaVision based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of SEK270.0, and the most bearish reporting a price target of just SEK220.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be SEK1.0 billion, earnings will come to SEK260.8 million, and it would be trading on a PE ratio of 25.0x, assuming you use a discount rate of 5.3%.
• Given the current share price of SEK173.0, the analyst price target of SEK242.5 is 28.7% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.