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On Wednesday, Wolfe Research made a significant change to its view on Livanova (NASDAQ:LIVN) stock, downgrading it from ’Outperform’ to ’Peer Perform’. The shift in rating reflects the firm’s reassessment of the medical device company’s future earnings potential and valuation. According to InvestingPro data, the stock has already taken a significant hit, dropping 12.23% in the past week and currently trading near its 52-week low of $40.51.
The downgrade was based on Wolfe Research’s analysis of Livanova’s adjusted earnings per share (EPS), which excludes certain costs that the firm considers relevant to the company’s valuation. Specifically, Wolfe Research adjusted for around $35 million, or approximately 50 cents per share, in stock-based compensation costs, and an estimated 45 cents per share in costs related to financing for litigation in Italy. Despite these adjustments, InvestingPro analysis shows the company maintains strong fundamentals with a "GREAT" overall financial health score and revenue growth of 8.66% in the last twelve months.
Wolfe Research’s valuation model indicates that Livanova’s fair value lies in the range of the low-$40s to mid-$50s per share. This valuation is based on 15 to 20 times the company’s projected EPS for the year 2025. While the stock currently trades at a high P/E ratio of 95.7x, InvestingPro’s comprehensive Fair Value analysis suggests the stock may be undervalued at current levels. Subscribers to InvestingPro can access detailed valuation metrics, financial health scores, and eight additional exclusive ProTips for deeper insights into Livanova’s investment potential.
The analyst’s statement provided insight into the methodology behind the downgrade: "We rate LIVN shares Peer Perform and see fair value in the low-$40s to mid-$50s per share which is roughly 15-20 times 2025 EPS. ’As-published’ adjusted EPS (1) excludes stock-based compensation and (2) excludes financing cost related to the Italy litigation. We adjust for these items in our valuation work. So...from as published adjusted EPS we (1) include approximately ~50c or $35M of cost from stock-based compensation and (2) include approximately ~45c of cost in 2025 from the Italy litigation financing." For a complete analysis of Livanova’s valuation metrics and future prospects, investors can access the comprehensive Pro Research Report available exclusively on InvestingPro.
Investors in Livanova may take note of Wolfe Research’s updated stance as they assess the company’s stock performance and future prospects. The new rating serves as a gauge for market participants looking to understand the current valuation of Livanova’s shares in relation to its expected earnings and financial obligations.
In other recent news, LivaNova PLC reported its fourth-quarter 2024 earnings, revealing an earnings per share (EPS) of $0.81, which surpassed analysts’ expectations of $0.80. The company’s revenue for the quarter was $322 million, slightly below the anticipated $323.64 million. LivaNova has set a 6-7% organic revenue growth target for 2025. Stifel analysts have adjusted their outlook on LivaNova, reducing the stock price target to $60 from $72 while maintaining a Buy rating. The company’s fourth-quarter revenues of $321.8 million fell short of the consensus estimate, marking its first revenue miss since early 2020. Despite this, LivaNova demonstrated strong performance with a full-year organic revenue growth of 11%. Looking ahead, the company is focusing on new product launches and FDA submissions, particularly in the VNS therapy system and obstructive sleep apnea programs. Additionally, LivaNova is preparing for significant potential catalysts in 2025, including a supreme court ruling on SNIA litigation and the final CMS data submission for the RECOVER depression trial.
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