CE Mark And Global Expansion Will Elevate HIFU Adoption

Key Takeaways

• New approvals and strategic collaborations enhance EDAP TMS's market opportunities, potentially driving future revenue growth and improving margins.
  
• Expanded market presence through international and U.S. expansions may lead to increased utilization and revenue from Focal One.
  
• Reliance on declining non-core businesses and execution risks in HIFU technology investments may hinder EDAP TMS's revenue growth and profit margins despite promising prospects.

Catalysts

Develops, produces, markets, distributes, and maintains a portfolio of minimally invasive medical devices for the treatment of urological diseases in Asia, France, the United States, and internationally.

• The recent CE Mark approval for Focal One Robotic HIFU for treating deep infiltrating endometriosis opens new market opportunities and expands EDAP TMS’s addressable market, potentially driving future revenue growth.
  
• The publication of the HIFI study in a prominent journal may improve Focal One’s adoption as a first-line treatment for prostate cancer, positively impacting procedural volumes and, consequently, revenue and earnings.
  
• The new CPT Category III code for transrectal HIFU for benign prostatic hyperplasia (BPH) enables reimbursement, setting the stage for increased utilization of Focal One and contributing to potential revenue growth.
  
• Expansion efforts in the U.S., with new Focal One system placements in several states, alongside international market entry in countries like Portugal and Turkey, suggest a broadening market presence that could enhance future revenues.
  
• Strategic collaborations with technology partners like Philips and Cortechs.ai to integrate advanced imaging solutions may enhance the precision and value proposition of Focal One, supporting increased adoption and potentially improving net margins.

EDAP TMS Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming EDAP TMS's revenue will grow by 8.2% annually over the next 3 years.
• Analysts are not forecasting that EDAP TMS will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate EDAP TMS's profit margin will increase from -29.7% to the average US Medical Equipment industry of 12.9% in 3 years.
• If EDAP TMS's profit margin were to converge on the industry average, you could expect earnings to reach €10.5 million (and earnings per share of €0.28) by about May 2028, up from €-19.0 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 34.2x on those 2028 earnings, up from -3.6x today. This future PE is greater than the current PE for the US Medical Equipment industry at 31.6x.
• Analysts expect the number of shares outstanding to grow by 1.07% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.13%, as per the Simply Wall St company report.

EDAP TMS Future Earnings Per Share Growth

Risks

• The reliance on non-core ESWL and distribution businesses, which are expected to decline by 20% to 25% in 2025, suggests that revenue diversification might be insufficient, impacting both total revenue and overall profit margins.
  
• Operating losses continue to persist, with an operating loss of €3.7 million in Q4 2024, and a slight increase from €3.5 million in the same period in 2023, indicating pressure on net margins.
  
• The company's financial health depends significantly on the U.S. market, yet potential tariff changes and reliance on a European supply base might introduce cost challenges and possibly compress net margins.
  
• Although Focal One is gaining traction, the high growth projections for the HIFU business (16% to 25% growth in 2025) could be at risk if procedure adoption and systems placements face delays, impacting projected revenue growth.
  
• EDAP's strategic shifts and investments in HIFU technology for new indications like pancreatic cancer and BPH, while promising, carry execution risks and could fail to translate into immediate revenue increases, thereby affecting future earnings stability.

Valuation

• The analysts have a consensus price target of $8.5 for EDAP TMS 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 $19.0, and the most bearish reporting a price target of just $2.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be €81.2 million, earnings will come to €10.5 million, and it would be trading on a PE ratio of 34.2x, assuming you use a discount rate of 8.1%.
• Given the current share price of $2.11, the analyst price target of $8.5 is 75.2% 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.