On Wednesday, Citi issued a downgrade for Pulmonx Corp . (NASDAQ:LUNG) from a "Buy" to a "Neutral" rating, accompanied by a significant reduction in the price target to $7.50 from the previous $17.00.
The reevaluation comes despite the company's consistent delivery on guidance and its year-to-date stock performance, which has seen approximately a 50% decline. According to InvestingPro data, the company maintains strong liquidity with a current ratio of 7.7 and holds more cash than debt on its balance sheet.
The downgrade reflects Citi's concerns about the challenges facing Pulmonx in stimulating its stock price movement. Even with new management onboard, including CEO Steve Williamson since February 2024 and CFO Mehul Joshi since April 2024, the firm anticipates the stock's recovery to hinge on the company's efficiency improvements and patient funnel enhancements through its LungTraX platform.
Despite current challenges, InvestingPro analysis shows the company achieved impressive revenue growth of 22.3% in the last twelve months, though it remains unprofitable.
Looking ahead to 2025, Citi forecasts a slowdown in the addition of new U.S. centers to approximately 29, compared to around 55 expected in 2024. Nevertheless, this deceleration is expected to be somewhat balanced by an increase in utilization rates. The company's growth prospects are further anticipated to be supported by the introduction of the Zephyr valve in Japan and the commercialization of Aeriseal in 2026.
Despite optimism surrounding the potential of Pulmonx's Zephyr valve franchise, Citi remains cautious about the stock's near-term prospects. The firm suggests that a meaningful appreciation in Pulmonx's stock price is unlikely until the company demonstrates accelerated revenue growth and clearer paths to profitability.
Consequently, Citi has adjusted its price target based on 3-4 times the estimated 2025 revenue, down from the previous 5-6 times, and has revised its discounted cash flow valuation to $11 from $17.
In other recent news, Pulmonx Corporation reported a solid 15% increase in worldwide sales in its third quarter, totaling $20.4 million. The U.S. market played a significant role in this growth, with a 17% rise in revenue, while international sales also saw a 12% increase. The company reaffirmed its full-year revenue guidance, indicating its confidence in continued growth, particularly in international markets.
Pulmonx also made strategic advances by focusing on physician training, patient workflow automation, and raising awareness of its Zephyr Valves for COPD treatment. The company's management expects a 20% growth midpoint for full-year 2024 revenue, with anticipated growth catalysts in 2025 and beyond.
Despite a reported net loss of $14.1 million for the quarter, Pulmonx managed to reduce its operating expenses by approximately $5 million. The company is also making significant progress in its clinical trials, with the AeriSeal program set to launch commercially outside the U.S. in 2026 and within the U.S. in 2027.
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