Canaccord Says The Nellix 'Carrot' Should Drive Endologix Higher

Nellix is an investigational EndoVascular Aneurysm Sealing (EVAS) system designed for the treatment of infrarenal abdominal aortic aneurysm (AAA).

Rating And Justification

"We upgrade ELGX to BUY, as we think the firm has robust momentum coming out of SVS (where full NELLIX US IDE data were presented) and heading into H2:16/2017 (when NELLIX will hit the US market)," analyst Jason Mills wrote in a note.

The analyst expects "higher, pre-Nellix consumption of Ovation & AFX2 as doctors seek a favorable place in queue for Nellix training" amid perceived robust demand for Nellix upon approval.

Related Link: Endologix Reveals Positive Clinical Data From Nellix EVAS Forward-IDE Study

Mills estimates Endologix's organic top-line growth rate through 2018 will approximate 20 percent, and also notes gross margins are starting to re-accelerate.

The analyst highlighted revenue growth and gross margin as the two highest correlated variables to multiple expansion in small-cap med-tech, according to Canaccord's regression analysis.

The analyst anticipates the Nellix U.S. ramp will be much faster than Europe's ramp, and anticipation should drive share gain via new customers adopting Ovation/AFX2 within the near term.

Bottom Line

"In sum, we anticipate an accelerating momentum in ELGX accounts ahead of US NELLIX approval. This should show up in H2:16 quarterly results, providing further ammunition for the stock heading into the FDA approval announcement, which we continue to anticipate before year-end 2016E," Mills added.

Mills raised the price target to $15.50 from $11.25 and increased 2017 revenue estimate to $243 million up from $231 million. For 2016, the analyst still expects a loss of $0.77 and revenue of $200.7 million.

At the time of writing, shares of Endologix rose 5.52 percent to $13.38.