Piper Jaffray starts Inogen at neutral

Piper Jaffray has initiated coverage of Inogen (NASDAQ:INGN) with a “neutral” rating and price target of $46. The stock closed at $41.07 on Wednesday.

“We truly appreciate the unique technology the company has developed – portable oxygen concentrators (POCs) – and believe it will continue delivering solid top-line growth in the coming years,” writes analyst Matt O’Brien.

“However, the lack of recurring revenue, increased competition, primarily from ResMed following its recent acquisition of Inova Labs, and most importantly, 18% run [in the stock] in the past several days, driving the multiple up to 4.1 times our 2016 sales estimate (a 20% premium to its peer group) leads us to a neutral rating,” he added.

Mr. O’Brien’s price target is based on a multiple of 4.6 times estimated sales in 2016.

He said the number of people with COPD going on oxygen therapy is growing at a rate of 7% to 10% annually. “Within this group, we estimate only about 13% use POCs, compared with about 52% who use traditional oxygen tanks for daily needs. The remaining 35% of patients are sedentary and poor candidates for POCs.”

While the patient population for Inogen’s products is large, he said there is little recurring revenue associated with the story, meaning for the company to grow, it needs to increase the number of systems sold each year, “which we fear will be challenging going forward.”

In addition, most of the time, a patient will need to pay out-of-pocket for their system, which may limit the product to a select portion of the population with the financial ability to purchase the device, he added.