On Tuesday, Lake Street Capital Markets adjusted its stock price target for Alphatec Holdings (NASDAQ:ATEC), a medical technology company, reducing it to $18.00 from the previous $32.00, while maintaining a Buy rating on the stock. The firm's analyst cited ongoing concerns over the company's cash position as a significant factor influencing trading activity, noting that these worries have been prevalent for roughly three and a half years.
The analyst remains positive about Alphatec's prospects, emphasizing the company's commitment to becoming a leading entity in the spine industry. Despite the recent trading lows, with stock prices nearing a four-year low, the firm encourages investors to purchase shares, believing that Alphatec is not at risk of running out of cash or requiring an additional equity infusion in the near future.
Alphatec is expected to participate in investor conferences in New York City and Boston this week. The company has projected an increase in cash use for the third quarter, estimating it to be between $25M and $30M, which is $25M higher than initially expected. This increase is attributed to a rise in Days Sales Outstanding (DSOs) and inventory inefficiencies, which are believed to be temporary setbacks.
The company concluded the second quarter with $100M in cash and anticipates drawing upon $15M to $20M of remaining liquidity from its credit line with MidCap Financial towards the end of the third quarter or shortly thereafter. Alphatec is also forecasting cash generation of $5M to $10M in the fourth quarter, which is expected to replenish its cash reserves to approximately $100M by the end of the year, providing sufficient capital for operations in 2025.
Alphatec's performance has been marked by strong organic revenue growth and consistent margin expansion since 2019. The company aims to achieve free cash flow breakeven in 2025 and has set long-term goals for 2027, including $1.0B in revenue, $180.0M in adjusted EBITDA, an adjusted EBITDA margin of 18%, and free cash flow of $65.0M.
The reduction in the price target to $18 reflects current industry multiples based on Alphatec's revenue and adjusted EBITDA projections for 2027. The analyst expects that investor sentiment will shift from fear to optimism in the upcoming quarters as the company's strong management team continues to execute its strategy.
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