On Tuesday, Stifel has downgraded shares of Sonendo Inc. (NYSE: SONX) from Buy to Hold, significantly reducing the price target to $0.25 from the previous $1.00. The adjustment comes despite the company's fourth-quarter results aligning with revenue expectations and reporting a slightly better than anticipated EBIT loss.
The primary concern for the downgrade is Sonendo's 2024 revenue guidance, which is projected to be between $28 million and $30 million, a figure notably lower than Stifel's prior estimate of $38 million, even after accounting for the recent sale of TDO software.
The analyst from Stifel expressed that the downgrade was not a reaction to the fourth-quarter results of 2023, but rather due to the outlook for 2024, which did not meet their expectations. The forecast suggests a significant year-over-year decline in sales, which has led to a revision of the sales strategy by the management.
The analyst noted that there were initial hopes for an acceleration in console sales driven by new direct sales organization (DSO) partnerships and revamped selling initiatives. However, the latest guidance indicates a 34% drop in sales year-over-year.
The performance indicators (PIs) for Sonendo also seem to be a cause for concern, with estimates showing a continued decline in utilization, anticipated to decrease by mid-teens percentages. This metric is considered crucial for the company's performance.
While acknowledging the current low stock price, the analyst from Stifel indicated a preference to observe from the sidelines how the company's capital sales evolve. There is also an interest in whether the introduction of a new billing code for PIs, which could potentially increase payments by $40 to $60 starting in 2025, might boost utilization in the long term.
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