EnteroMedics Inc. (ETRM) may be a largely unknown microcap stock to most investors. The company is in the development stages of making medical devices using neuroblocking technology to treat obesity, metabolic diseases and other gastrointestinal disorders. A new research report has shares rising handily.
Canaccord Genuity reiterated its Buy rating, but where the big boost is coming from is that the firm doubled its price target to $3.00 from $1.50 on Tuesday. The prior price target already implied upside of about 28% from the $1.17 close on Monday. This new $3 price target implies upside of a whopping 150% if the call turns out to be correct.
Investors do need to understand that there is risk here. Shares were recently lower on a concern over the FDA decision in the first half of 2014 after it formally responded to the company's premarket approval application. At $1.17, the 52-week range is $0.81 to $3.70, and we would caution that the market cap is a mere $65 million.
Canaccord Genuity's William Plovanic and Kyle Rose made the research call here after traveling with EnteroMedecs' management team. The analysts were quoted in the report as saying:
EnteroMedics expects to respond to those questions within the next 30 days, and an FDA panel meeting is now expected late in the fourth quarter of 2013, or more likely the first quarter of 2014. Given the relative safety of the device, moderate weight loss, and lack of alternatives for obese patients, we believe the likelihood of a positive panel result is high. As such, we are raising our price target and believe the risk/reward is favorable for investors with a speculative risk profile.
The analysts are basing this value on a post-approval valuation of the Maestro System for obesity. The firm is putting a system price at $10,000 to $12,500, and the assumption of $10,000 per implant.
We have seen a gain of more than 8% to $1.27 in the early trading on Tuesday.