Roth starts IRIDEX at buy

Roth Capital Partners initiated coverage of IRIDEX (NASDAQ:IRIX) with a “buy” rating and $20 price target. The stock closed at $13.22 on Dec. 20.

Iridex is an ophthalmic medical device company focused on development and commercialization of medical laser systems used to treat sight-threatening eye diseases, including glaucoma and retinal diseases.

“We believe the company is in the early stages of a meaningful value driver with its G6 MicroPulse platform for glaucoma that we expect should accelerate top-line growth and expand gross margins over the coming years,” writes analyst Chris Lewis.

“Given its relatively discounted valuation (2.4x/2.0x our 2017/2018 revenue projections versus peers at 3.7x/3.3x), we believe shares of IRIXEX present a favorable risk-reward profile at current levels,” he added.

Mr. Lewis said IRIDEX has had notable commercial success since launching G6 in the first quarter of 2015, with more than 400 systems and 27,000 disposable probes sold.

“Despite the significant commercial progress, our due diligence, along with continued encouraging commercial metrics, indicates G6 adoption and disposable revenue utilization remains in early stages,” he said.

“We believe the most meaningful opportunity will be the disposable revenue annuity stream over time (expecting $20,000-$25,000 of annual probe revenue per system at 80% gross margins),” he added.

He figures G6 will generate sales of roughly $10-million this year, and his model calls for G6 sales growing to $16.5-million in 2017 and $26-million in 2018, which “may prove conservative, in our view.”