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On Monday, BTIG maintained its Buy rating on Tactile Systems Technology (NASDAQ:TCMD), with a steady price target of $16.00. The firm addressed the recent guidance reduction by Tactile Systems, which was attributed to stricter Medicare documentation requirements impacting sales of its Lymphedema products. Tactile Systems had revised its fiscal year 2024 revenue forecast downward by approximately $7 million to a range of $293 million to $298 million, indicating a growth rate between 7% and 9% year over year.
The reduction in guidance by Tactile Systems was partly due to the increasing rates of improper payment identified by CMS RAC audits for pneumatic compression devices. In 2023, an audit revealed that 78.9% of Medicare claims for these devices were improperly paid, either due to insufficient documentation or a lack of medical necessity. However, BTIG notes that these audits represent a very small portion of total Medicare claims, suggesting the impact on Tactile Systems may be minimal.
BTIG questions the extent of the guidance reduction by Tactile Systems, considering the small risk posed by the Medicare audits. The firm speculates whether the front-end documentation requirements might be more challenging than anticipated, but also suggests that the significant guide down could potentially position Tactile Systems to surpass consensus expectations in upcoming quarters.
The investment firm believes that for Tactile Systems' stock to perform well, the company needs to consistently exceed expectations and raise its outlook, particularly by improving patient dynamics outside of the Medicare segment. BTIG's analysis indicates that the valuation of Tactile Systems currently assumes minimal growth, which could mean any positive developments could have a favorable impact on the stock's performance.
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