MoneyTalks: Two ASX medical imaging stocks are put under microscope - both have big price targets

Ord Minnett believes 4DMedical could double
Wilsons Advisory also slaps a big price target on Mach7

4D Medical’s share price could double

Ord Minnett has initiated coverage of 4DMedical (ASX:4DX) with a Speculative Buy recommendation and $1.20 price target (vs current price of 56c).

4DX is a global medtech company focused on the commercialisation of its flagship respiratory imaging platform, XV Technology.

Ord Minnett believes the company is strongly positioned to disrupt the US$31b global respiratory diagnostics market, with its software products offering a step-change in diagnostic capability vs the incumbent (e.g. chest X-rays, CTs).

The broker sees 2024 as an inflection point for the business, citing several factors including the potential for rapid growth in the US.

4DX’s commercialisation in the US market has accelerated in FY24 following the recent win with Philips, targeting XV Technology delivery into Veterans Affairs (VA). There is the potential here to accelerate sales in the US via this Philips reseller agreement.

Medicare reimbursement in the US has also been granted for XV LVAS at US$299 per scan.

There is a potentially huge market here, says Ord Minnett, as the US Medicare covers around 65.7 million lives in the country (or around 20% of the population on 4DX estimates).

This coverage is expected to affect care delivery at more than 4,000 Medicare-certified hospitals across the US.

Secondly, the recent acquisition of Imbio can drive revenue and cost synergies toward free cashflow breakeven.

Imbio is a well-regarded imaging AI business based in Minneapolis. Ord Minnet believes the acquisition offers 4DX a >US$600m revenue opportunity which it could penetrate rapidly.

And thirdly, Ord Minnett believes that 4DX can maintain its recent momentum in Australia – an addressable market of around $400m – and push towards 150 installed sites by FY24/25.

“4DX’s two key markets, US and Australia, represent >45% of the global market.

“We view 4DX’s risk-reward as compelling at current levels, with its 6x FY25 EV/sales comparing favourably vs peers on a growth adjusted basis,” added Ord Minnett.

Mach7 is a “long term play”

Wilsons Advisory said it has maintained its Overweight rating on Mach7 (ASX:M7T), with a target price of $1.05 per share (versus current price of 69c).

Mach7 is a health technology company specialising in Enterprise Imaging solutions. Their technology allows healthcare practitioners across all departments and specialities to view and store diagnostic imaging.

Its most recent half results show $13.3m in total revenue, which was 19% higher vs pcp.

“Whilst we expect ongoing catalysts with the announcement of new contract wins, the largest catalyst for Mach7 is the outcome of the Phase 2 VA (Veterans Affairs) contract worth $48m,” said the note from Wilsons.

But as expected, Mach7 announced an FY24 revenue downgrade owing to an increasing amount of healthcare facilities opting for subscription contracts vs capital contracts, removing the 50-60% of contract value that it would otherwise receive up front.

“This is not surprising, and to be frank, was well overdue,” said Wilsons.

“The market’s reaction was neutral because the revenue downgrade was countered by the fact that Mach7 increased FY24 sales order guidance by 25%, now targeting >$60m.”

Wilsons says it remains positive on Mach7, given sales orders are tracking ahead of expectations, and catalysts in FY24 (VA contract) present upside to forecasts.

“We maintain our Overweight rating with an updated $1.05/sh price target.

“Pleasingly, despite delayed revenue, Mach7 is targeting cash flow breakeven in FY24.

“The key question that remains is the ability of Mach7 to capture capital revenue in H2 FY24. Mach7 however is a long-term play, we just hope investors don’t miss the boat,” said Wilsons.