Novadaq Technologies : Raising Target Price to $ 22

NVDQ : NASDAQ : US$16.18
NDQ : TSX
BUY 
Target: US$22.00

COMPANY DESCRIPTION:
Novadaq develops and manufactures intra-operative fluorescence imaging technologies used in a variety of open surgeries, such as breast, head, and neck reconstruction; tumor  and bowel re-section; and coronary artery bypass grafting (CABG).
In addition, partner Intuitive Surgical offers Novadaq’s FIREFLY imaging system on the da Vinci robot. Founded in 2000, the
company’s products were used by 45 of the top 50 cancer centers in 2011.
All amounts in US$

STRONG Q3; “GLOWING” GROWTH
VISIBLE AHEAD; RAISING PT TO $22
Investment recommendation
NVDQ turned in another exceptional quarter, reporting record quarterly revenue, strong disposable kit sales and system placements, and continued ramp on both PINPOINT and LUNA opportunities – all of which produced upside to expectations. Importantly, management expects to increase its sales rep headcount from 42 reps currently to 150-160 over the next few years. In our experience, such a robust sales force expansion can be a strong leading indicator of “glowing” growth in small-cap med tech land, and we believe it signifies NVDQ’s level of confidence with its “SPY” growth opportunities. Also, NVDQ’s new, “non-SPY” product development initiatives including Trapper, surgical marker, and nerve and lymph node localization – none of which are in our estimates – seem highly synergistic with its fluorescence imaging platform and could drive growth above our current estimates.
We reiterate our BUY rating and raise our price target to $22 from $18.
We continue to believe that NVDQ possesses one of the most attractive, emerging technologies in med-tech, and possesses the largest, least penetrated collection of target addressable markets (TAM) in our space. We recommend investors add positions at these levels.
Investment highlights
 Q3 revenue of $8.9M (+49%) sailed by our/consensus $8.3/$8.7ME.
 Q3 SPY recurring revenues of $3.5M hit our target spot on; notably kit shipments to hospitals grew 39% Y/Y to over 5900 kits.
 NVDQ shipped 160 SPY fluorescent imaging systems across all product platforms (SPYElite, FireFly, PINPOINT, LUNA and Cardiac) blowing past our estimate of 138 systems. 32 sales beat estimates.
 Pro-forma LPS was ($0.02), better than our estimate of ($0.05) and the consensus view of ($0.03).

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