On Monday, Morgan Stanley (NYSE:MS) revised its rating on Glaukos Corporation (NYSE:NYSE:GKOS), downgrading the stock from Equalweight to Underweight while maintaining a price target of $120.00. The downgrade comes despite the firm's recognition of Glaukos' strong product cycle with iDose and a robust pipeline.
According to InvestingPro data, the company's market capitalization stands at $7.92 billion, with revenue growing at 18.7% over the last twelve months.
The analyst noted that Glaukos is an excellent company but justified the downgrade based on valuation concerns. The stock has seen a significant increase of 120.56% in the past year, driven by high expectations for its iDose product.
The analyst expressed difficulty in justifying the current valuation, pointing out that Glaukos trades at nearly 16 times its enterprise value to sales ratio, which is considerably higher than the sector's trend line when matched with its growth rate. InvestingPro's Fair Value analysis suggests the stock is currently overvalued, aligning with Morgan Stanley's concerns.
The firm acknowledged that while current Street estimates for iDose sales in 2025 might seem conservative at $100 million, the market capitalization increase of approximately $4.6 billion since the ramp-up of iDose expectations suggests that sales would need to exceed $1 billion for the valuation to make sense.
The analyst provided further context, explaining that even if sales reached $1.5 billion by 2028 with a projected 30% group EBITDA margin, the stock would still be trading at an estimated 18.5 times normalized EBITDA.
In conclusion, Morgan Stanley's stance reflects a belief that Glaukos' stock may experience limited upside in 2025 as it adjusts to the substantial gains witnessed recently. This perspective has led the firm to adopt a more cautious view on the investment potential of Glaukos shares within their coverage universe.
While the company maintains strong liquidity with a current ratio of 5.54, investors seeking deeper insights can access comprehensive valuation metrics and 12 additional ProTips through InvestingPro's detailed research report.
In other recent news, Glaukos Corporation reported a robust third-quarter performance with a 24% increase in net sales, reaching $96.7 million, primarily fueled by a 35% rise in U.S. glaucoma franchise sales.
The company also raised its full-year 2024 sales guidance to between $3.77 million and $3.79 million, following the successful launch of the iDose TR and the iStent product lines.
Glaukos is optimistic about future growth, driven by its glaucoma and corneal health franchises, and is aiming for cash flow breakeven and future profitable quarters. The company also plans to convert $57.5 million in convertible Senior Notes to common stock before December 16, 2024.
However, Glaukos continues to face reimbursement challenges with some Medicare Administrative Contractors and manufacturing inefficiencies related to the iDose launch. Despite these challenges, the company anticipates top-line acceleration in 2025, driven by iDose.
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