US Medicare Coverage And Aquablation Trials Will Expand Patient Access

Key Takeaways

• Strong revenue growth driven by U.S. system demand and international sales, signaling potential for continued expansion.
  
• Favorable clinical trial results and upcoming Medicare coverage are set to boost system adoption and expand the patient market.
  
• Rising costs, tariff exposure, and international expansion risks, combined with net losses, threaten PROCEPT BioRobotics' near-term profitability and revenue growth prospects.

Catalysts

A surgical robotics company, focuses on developing transformative solutions in urology in the United States and internationally.

• The company's strong revenue growth of 55% year-over-year signifies robust demand for its U.S. systems and handpieces as well as record international revenues, indicating potential for continued revenue expansion.
  
• The implementation of U.S. Medicare coverage effective April 6, 2025, expanding access by removing procedural limitations, is expected to enhance patient access and drive revenue growth.
  
• The clinical trial results from WATER III demonstrating favorable outcomes for Aquablation therapy are likely to support changes in global urology guidelines for larger prostates, potentially boosting future revenues.
  
• With the recent launch of the HYDROS system and its growing traction among strategic IDNs, there's momentum for further adoption, which should drive system sales and revenue growth internationally.
  
• The favorable modifications in LCD changes by major Medicare administrative contractors should broaden the patient market, improving procedural volumes, and positively impacting revenue growth.

PROCEPT BioRobotics Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming PROCEPT BioRobotics's revenue will grow by 30.6% annually over the next 3 years.
• Analysts are not forecasting that PROCEPT BioRobotics will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate PROCEPT BioRobotics's profit margin will increase from -36.2% to the average US Medical Equipment industry of 12.9% in 3 years.
• If PROCEPT BioRobotics's profit margin were to converge on the industry average, you could expect earnings to reach $71.6 million (and earnings per share of $1.09) by about May 2028, up from $-90.2 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 86.7x on those 2028 earnings, up from -34.2x 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 6.79% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.95%, as per the Simply Wall St company report.

PROCEPT BioRobotics Future Earnings Per Share Growth

Risks

• The tariff exposure, particularly related to components sourced from China, could impact gross margins, as tariffs may lead to a 150 basis point reduction, impacting the overall profitability and expenses.
  
• Costs are rising, as evidenced by the operating expenses increase to $71.6 million, which could have a negative effect on net margins and overall earnings if not managed efficiently.
  
• Despite reporting significant revenue growth, the company is still operating at a net loss of $24.7 million for the first quarter of 2025, which could raise concerns about its ability to achieve profitability in the near term.
  
• There's an acknowledged execution risk associated with expanding into international markets and maintaining growth, which could impact future revenue if expected momentum in international regions like the U.K. does not materialize.
  
• The global macroeconomic environment, including potential economic slowdowns and capital expenditure constraints within hospitals, poses a risk to the company's revenue growth and system sales projections.

Valuation

• The analysts have a consensus price target of $76.875 for PROCEPT BioRobotics 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 $90.0, and the most bearish reporting a price target of just $60.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $554.8 million, earnings will come to $71.6 million, and it would be trading on a PE ratio of 86.7x, assuming you use a discount rate of 7.0%.
  
• Given the current share price of $56.31, the analyst price target of $76.88 is 26.8% 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.