TMS Acquisition And BMP Expansion Will Transform Treatment Delivery

Key Takeaways

• The acquisition of Greenbrook and expansion of the BMP program are expected to significantly boost revenue through increased patient access and operational efficiency.
  
• FDA clearance for adolescent treatment and improved insurance coverage will expand the market and increase revenue.
  
• Integration of Greenbrook TMS and operational challenges may strain Neuronetics' margins and revenue, while growth prospects hinge on effective cost synergies and a new SPRAVATO model.

Catalysts

A commercial stage medical technology company, designs, develops, and markets products for patients with neurohealth disorders in the United States and internationally.

• The acquisition of Greenbrook TMS is expected to make Neuronetics a leading TMS supplier and provider in the U.S., potentially boosting revenue through increased patient access and improved operational efficiencies.
  
• The expansion of the Better Me Provider (BMP) program, which has already shown a significant increase in patient volume, is expected to continue driving revenue growth in 2025 by expanding to more sites and increasing patient throughput.
  
• The FDA clearance for NeuroStar to treat adolescent patients, alongside improved insurance coverage, is anticipated to expand the addressable market, leading to increased revenue from the adolescent segment.
  
• Identified cost synergies from the Greenbrook acquisition, already capturing 90% of the $22 million in savings, are expected to enhance margins and contribute to achieving cash flow positivity by Q3 2025.
  
• The implementation of the buy-and-bill model for SPRAVATO in Greenbrook clinics is expected to increase revenue capture dramatically, supporting overall revenue growth in 2025.

Neuronetics Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Neuronetics's revenue will grow by 34.8% annually over the next 3 years.
• Analysts are not forecasting that Neuronetics will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate Neuronetics's profit margin will increase from -58.4% to the average US Medical Equipment industry of 12.9% in 3 years.
• If Neuronetics's profit margin were to converge on the industry average, you could expect earnings to reach $23.7 million (and earnings per share of $0.3) by about May 2028, up from $-43.7 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 28.7x on those 2028 earnings, up from -6.7x today. This future PE is lower than the current PE for the US Medical Equipment industry at 31.6x.
• 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 7.5%, as per the Simply Wall St company report.

Neuronetics Future Earnings Per Share Growth

Risks

• The integration of Greenbrook TMS led to a significant decrease in gross margin from 77.6% to 66.2%, reflecting the financial challenges of incorporating clinic operations, which could negatively impact net margins.
  
• The U.S. treatment session revenue saw a 14% year-over-year decline due to the removal of Greenbrook treatment session revenues post-acquisition, which may signal potential disruptions affecting future revenue stability.
  
• The net loss for the fourth quarter significantly increased from $5.4 million in the prior year to $12.1 million, indicating potential challenges in controlling operational costs and achieving profitability.
  
• The company is dependent on capturing cost synergies and optimizing operations to achieve a cash flow positive status by Q3 2025, which introduces execution risk impacting earnings.
  
• The transition to a buy-and-bill model for SPRAVATO is expected to drive growth but involves complexities and cash flow challenges related to inventory management, potentially straining cash resources needed to support expanded operations.

Valuation

• The analysts have a consensus price target of $6.833 for Neuronetics 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 $8.0, and the most bearish reporting a price target of just $5.5.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $183.3 million, earnings will come to $23.7 million, and it would be trading on a PE ratio of 28.7x, assuming you use a discount rate of 7.5%.
• Given the current share price of $4.43, the analyst price target of $6.83 is 35.2% 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.