On Thursday, RBC Capital downgraded Outset Medical Inc. (NASDAQ:OM) stock from Outperform to Sector Perform, slashing the price target to $3.00 from the previous $6.00.
The firm's decision follows Outset Medical's second-quarter results for 2024, which fell short of market expectations, prompting the company to revise its revenue guidance downwards.
The medical technology company reported that its revenue guidance for the year 2024 has been adjusted to approximately $110 million, a decrease of 15.6% year-over-year, from the previously forecasted range of $145-153 million, which would have represented an increase of 12-18% year-over-year. This revision comes in the wake of the company's latest quarterly performance, which did not meet consensus estimates.
RBC Capital noted that operational execution at Outset Medical remains a challenge, as evidenced by the company's recent quarterly results. Despite the approval of Tablo Cart, a key product for the company, Outset Medical's second quarter was yet another disappointment.
The company is currently undergoing a commercial transformation aimed at driving conversions and securing larger deals. However, this strategic shift is resulting in an extended sales cycle.
Furthermore, Outset Medical has chosen not to reiterate its long-range planning (LRP) targets. The lack of clarity on execution and future visibility has led RBC Capital to adjust its outlook on the company's stock performance, resulting in the revised Sector Perform rating and a lower price target.
The analyst's comments underscore the uncertainty surrounding the company's ability to meet its operational goals and manage the extended sales process effectively.
In other recent news, Outset Medical reported a first quarter revenue of $28.2 million, falling short of expectations due to the TabloCart ship hold and a cyberattack. The company, however, remains optimistic about meeting its annual guidance following a rebound in treatment ordering.
Outset Medical also announced a significant restructuring plan aimed at reducing cash use by over $100 million through 2027, with the goal of achieving cash flow breakeven sooner than anticipated, without additional capital.
The company continues to focus on its recurring revenue model and expansion in the acute, home, and subacute markets. Gross margin improved to 31.1%, and operating expenses decreased. A positive outlook for annual revenue growth in the high-teens between 2025 and 2027 was also stated.
The company reaffirmed its revenue and gross margin guidance for the full year 2024 and anticipates reaching cash flow breakeven earlier than previously expected. Lastly, Outset Medical plans to ship TabloCart soon, which is expected to contribute to sales growth in the latter half of the year.
InvestingPro Insights
As Outset Medical Inc. (NASDAQ:OM) navigates through its commercial transformation, investors are closely monitoring the company's financial health and market performance. According to InvestingPro data, Outset Medical has a market capitalization of $175.86 million, with a revenue growth of 5.74% over the last twelve months as of Q1 2024. Despite this growth, the company's revenue for Q1 2024 showed a quarterly decrease of 15.83%, aligning with the challenges highlighted in RBC Capital's report.
InvestingPro Tips reveal that analysts have recently adjusted their earnings expectations upward for the upcoming period, which could indicate a potential shift in the company's trajectory. However, it's important to note that analysts do not expect Outset Medical to be profitable this year, and the stock's price has experienced significant volatility, having fallen by 79.38% over the last year. These insights suggest that while there may be optimism for future earnings, current performance and market sentiment remain cautious.
For investors seeking a deeper analysis of Outset Medical, InvestingPro offers additional tips, including insights into the company's cash burn rate, debt levels, and valuation metrics such as free cash flow yield. With more tips available on InvestingPro, investors can gain a comprehensive understanding of the company's financial position and make informed decisions.
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