CompuFlo Epidural System Will Unlock New Global Opportunities

Key Takeaways

• Strategic partnerships and regulatory approvals are expanding market access for the CompuFlo Epidural System, potentially driving significant revenue growth.
  
• E-commerce model adoption in the dental division is enhancing margins and could lead to sustained revenue and earnings growth.
  
• Heavy reliance on Medicare decisions and key partnerships, alongside operational and logistical challenges, threaten Milestone's sustainability and revenue growth.

Catalysts

A biomedical technology research and development company, patents, designs, develops, and commercializes diagnostic and therapeutic injection technologies, and devices for medical, dental, and cosmetic use in the United States, China, and internationally.

• The company's 22% increase in year-over-year revenue, particularly driven by a 57% increase in international dental sales, highlights improvements in logistics and operational efficiency, boosting revenue growth potential.
  
• The adoption and Medicare Part B reimbursement of the CompuFlo Epidural System, enhancing its financial accessibility, could significantly expand its market penetration and drive revenue growth through increased adoption and sales.
  
• The strategic partnership with Axial Biologics, leveraging their expertise and relationships in the pain management space within critical markets, is likely to enhance market penetration and revenue growth for the CompuFlo Epidural System.
  
• Recent regulatory approval in Brazil for the CompuFlo Epidural System opens significant opportunities in a large market, with potential for expanded international revenue along with planned distributor partnerships for market introduction.
  
• The shift to an e-commerce sales model in the dental division, resulting in 11.4% growth over nine months, is enhancing gross margins and could lead to steady revenue and earnings growth through improved customer engagement and operational efficiency.

Milestone Scientific Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Milestone Scientific's revenue will grow by 22.5% annually over the next 3 years.
• Analysts are not forecasting that Milestone Scientific will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate Milestone Scientific's profit margin will increase from -54.6% to the average US Medical Equipment industry of 12.9% in 3 years.
• If Milestone Scientific's profit margin were to converge on the industry average, you could expect earnings to reach $2.0 million (and earnings per share of $0.03) by about May 2028, up from $-4.7 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 102.8x on those 2028 earnings, up from -15.8x 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 1.49% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.9%, as per the Simply Wall St company report.

Milestone Scientific Future Earnings Per Share Growth

Risks

• Reliance on the CompuFlo Epidural System's adoption within JMAC regions is highly dependent on Medicare reimbursement decisions. Any delays or negative outcomes in obtaining reimbursement assignments from additional JMACs could hinder revenue growth projections.
  
• The company's financials reflect a net loss for both the current quarter and the first 9 months of 2024. Continuing operational losses could impact Milestone's ability to sustain itself without external funding, potentially affecting net margins and earnings.
  
• Milestone faces logistical challenges, such as those experienced with freight forwarders in 2024, which have previously impacted international sales. Such disruptions can negatively affect revenue continuity and growth.
  
• The lack of revenue from China in 2024, compared to prior periods, raises concerns about geopolitical or market-related issues affecting international sales channels, potentially reducing revenue.
  
• Dependence on key partnerships, such as the one with Axial Biologics, introduces execution risk. Any failure in these partnerships to deliver expected sales growth in targeted regions could lead to underperformance in revenue figures.

Valuation

• The analysts have a consensus price target of $2.125 for Milestone Scientific 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 $3.0, and the most bearish reporting a price target of just $1.25.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $15.8 million, earnings will come to $2.0 million, and it would be trading on a PE ratio of 102.8x, assuming you use a discount rate of 6.9%.
• Given the current share price of $0.95, the analyst price target of $2.12 is 55.3% 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.