On Wednesday, Lake Street Capital Markets adjusted its share price target for Semler Scientific (NASDAQ:SMLR), decreasing it to $40 from the previous $65, while keeping a Buy rating on the stock.
The revision follows the company's first-quarter earnings report, which did not meet the expectations set by the firm, the sole analyst covering Semler Scientific.
Semler Scientific's recent earnings were impacted by the Centers for Medicare & Medicaid Services (CMS) decision last year to gradually eliminate risk payments for asymptomatic Peripheral Artery Disease (PAD) testing over a three-year period.
This CMS policy change has broader implications, affecting many Medicare Advantage plans and consequently influencing Semler's business. Despite these challenges, the company has not reported any significant loss of PAD customers.
The firm anticipates that Semler will continue to experience the effects of these changes throughout the remainder of 2024, leading to a reduction in their financial forecast for the company. Semler is actively working to obtain a new 510(k) clearance from the FDA to market a heart dysfunction product.
While there is optimism about the company receiving this clearance, possibly in the second half of the year, the firm has chosen not to include any potential revenue from this new product in their financial model at this time, citing prudence.
The analyst maintains a positive long-term outlook for Semler, emphasizing the company's significant potential in the cardiovascular testing market.
Despite the reduced price target, the firm's Buy rating reflects a belief in Semler's future growth opportunities, even though it may take a few quarters for these prospects to materialize.
InvestingPro Insights
Amidst the adjustments to Semler Scientific's (NASDAQ:SMLR) price target by Lake Street Capital Markets, InvestingPro provides additional context to the company's financial health and market performance. Notably, Semler Scientific boasts an impressive gross profit margin of 89.43% for the last twelve months as of Q1 2024, underscoring the company's ability to maintain high profitability relative to its revenue. This aligns with the company's strategic financial management, as reflected in a low P/E ratio of 9.0, which suggests that the stock may be undervalued given its near-term earnings growth potential.
InvestingPro Tips highlight that Semler Scientific is trading at a low P/E ratio relative to near-term earnings growth and holds more cash than debt on its balance sheet, providing it with a solid financial foundation. These attributes could be critical for investors considering the company's long-term growth prospects in the cardiovascular testing market. Analysts also predict the company will be profitable this year, which may reassure investors in light of the recent earnings report.
The market has seen Semler's price fluctuate, with a notable 24.2% return over the last week. However, the company has experienced a significant decline over the last three months, with a price total return of -38.52%. Despite these short-term movements, the InvestingPro Fair Value estimate stands at 32.95 USD, which is below the analyst target but indicates potential upside from the previous close of 29 USD.
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