BANGALORE, Oct 8 (Reuters) - Canaccord Adams upgraded medical equipment maker NxStage Medical Inc (NXTM.O: Quote, Profile, Research, Stock Buzz) to "buy" from "hold," saying the improving per-center penetration rates and a likely drop in patient-attrition rates were stabilizing business trends.
"They don't need capital immediately, the business has finally stabilised, it seems like the new strategies are working," analyst William Plovanic said by phone.
In a note to the clients, Plovanic said the company has started to realize the benefits of a new sales strategy, which aimed at improving the penetration rates per dialysis center. "With demand exceeding supplies and training seats, we believe that NxStage is achieving its goals," Plovanic said. "An improved penetration rate per center will lead to leverage and therefore lower operating losses in future quarters."
Plovanic said DaVita Inc (DVA.N: Quote, Profile, Research, Stock Buzz), the biggest U.S. operator of dialysis clinics, has remained committed to marketing NxStage's lead product System One, a portable dialysis machine, which is a positive for the company.
On Sept. 4, NxStage announced it signed a one-year extension of its existing agreement with DaVita to supply blood tubing sets to DaVita centers.
"The contract represents about $20 million a year for NxStage's In-Center business and will likely benefit the top line starting in the fourth quarter," Plovanic said. He raised his price target on the stock to $6.50 from $4.75.
Shares of the company were trading up nearly 11 percent at $4.32 in midday trade on Nasdaq. (Reporting by Esha Dey in Bangalore; Editing by Anil D'Silva)