Veris Health's NIH Grant May Boost Future Revenue, But Financing Uncertainty Could Persist

Key Takeaways

• Strategic restructuring and subsidiary deconsolidation aim to strengthen the financial structure and improve net margins.
  
• Growth initiatives through partnerships and funding pursuits could enhance revenue and financial flexibility.
  
• The deconsolidation of Lucid and reliance on external financing introduce uncertainties and risks to revenue, earnings, and investor confidence.

Catalysts

Focuses on acquiring, developing, and commercializing novel products that target unmet needs in the United States.

• The successful deconsolidation of Lucid Diagnostics, eliminating PAVmed's exposure to Lucid's operational losses, allows the company to strengthen its balance sheet and could improve net margins by reducing operating expenses.
  
• The restructuring of convertible debt to maintain NASDAQ listing affects shareholder equity and may support a more stable financial structure, potentially improving future earnings.
  
• Veris Health's partnership with The Ohio State University and the $1.8 million NIH grant for the Cancer Care Platform could lead to increased revenue, particularly if successful commercial partnerships are formed.
  
• The company is actively pursuing funding for Veris Health and the PMX incubator's PortIO device, initiatives that once fully financed, could boost revenue and positively impact net margins.
  
• The strategic transformation towards a diversified, independently financed subsidiary model allows PAVmed greater flexibility and operational efficiency, potentially increasing future revenue and improving overall financial performance.

PAVmed Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming PAVmed's revenue will grow by 214.8% annually over the next 3 years.
• Analysts are not forecasting that PAVmed will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate PAVmed's profit margin will increase from 364.8% to the average US Medical Equipment industry of 13.0% in 3 years.
• If PAVmed's profit margin were to converge on the industry average, you could expect earnings to reach $16.3 million (and earnings per share of $1.26) by about March 2028, up from $14.7 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 9.9x on those 2028 earnings, up from 0.6x today. This future PE is lower than the current PE for the US Medical Equipment industry at 28.7x.
• Analysts expect the number of shares outstanding to grow by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 11.41%, as per the Simply Wall St company report.

PAVmed Future Earnings Per Share Growth

Risks

• The deconsolidation of Lucid Diagnostics from PAVmed, while preserving ownership, could lead to less financial synergy, affecting consolidated revenue and net earnings.
  
• The company's reliance on securing additional financing for Veris Health and the PMX incubator introduces uncertainty, which could impact future earnings and research and development expenses if funding is not secured.
  
• The potential delay in the Veris Health implantable monitor submission to the FDA may impact revenue growth and net margins if the timeline extends further into 2025.
  
• The dependence on strategic partnerships, such as the one with The Ohio State University’s cancer center, could present risks if such partnerships do not result in anticipated commercial opportunities, possibly affecting future revenue projections.
  
• The obligation to maintain compliance with NASDAQ listing standards and the need for shareholder approval for certain conditions introduce risks that could affect investor confidence and stockholder equity.

Valuation

• The analysts have a consensus price target of $9.0 for PAVmed 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 $4.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $125.9 million, earnings will come to $16.3 million, and it would be trading on a PE ratio of 9.9x, assuming you use a discount rate of 11.4%.
• Given the current share price of $0.77, the analyst price target of $9.0 is 91.5% higher. Despite analysts expecting the underlying buisness to decline, they seem to believe it's more valuable than what the market thinks.
• 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.