Scotiabank starts Novadaq at sector outperform

Scotiabank initiated coverage of Novadaq Technologies (NASDAQ:NVDQ; TSX:NDQ) with a “sector outperform” rating and a one-year price target of $18.  The stock closed at $11.43 on Tuesday.

Analyst Alan Ridgeway writes that at a multiple of eight times estimated 2017 sales, “Novadaq would trade at a premium to peers, which is justified, in our opinion, because we believe it will break even in roughly 12 months and has the potential to grow more than 30% annually through 2020.”

In addition, he said that at the eight times multiple, Novadaq would be valued at the average acquisition multiple paid by the major medical device companies over the past six years.

Mr. Ridgeway said surgeons who have adopted the SPY imaging technology have coined the phrase “SPY Don’t Lie” to describe their experience using SPY because the information it provides them enhances their ability to assess the adequacy of blood flow in real time and allows them to alter their surgical plans to address any issues.

“Numerous published studies have shown that this can reduce complications, which lowers healthcare costs,” he added. “In the current reimbursement environment, we believe this should drive adoption of the technology across a number of surgical indications and provide material growth for the company through 2020.” 

Mr. Ridgeway also noted that the company has transitioned to a direct-sales strategy, building an internal sales and distribution infrastructure, including 115 sales representatives, and is now entering the execution phase of its transition.