Feltl upgrades Novadaq to strong buy

Feltl & Co. upgraded Novadaq Technologies (NASDAQ:NVDQ; TSX:NDQ) to “strong buy” from “buy” after the company posted second quarter revenue ahead of expectations yesterday on the strength of its direct sales business.

Analyst Ben Haynor maintained his price target of $15 on Novadaq. The stock was quoted $10.13, up $1.30, at mid-day Thursday.

“At a mere 3.6 times 2017 EV/sales, we consider Novadaq shares highly undervalued,” he added.

Mr. Haynor noted that Novadaq said on a conference call with investors it believes it will meet or exceed its previous 2016 revenue guidance range of $84-million to $86-million. “We expect the company to exceed this range as it implies a second half year-over-year growth rate of only 30% at the upper bound,” he said. In the first half, Novadaq posted 41.4% growth.

Based on management’s commentary on the call, he said the strong recurring revenue performance and developments to occur later this year, leads him to “believe our estimates are likely conservative.”

For instance, he said that if DermACELL continues to perform well, it could add 1,500 basis points to the company’s growth rate in 2017, increased penetration in breast reconstruction cases could add 1,000 basis points as well, and considering Novadaq’s installed base should grow by about 35% this year, “it’s easy to see the company generating revenue growth of well over 30%,” he added.