Inside Wall Street: Palomar's In-Home Laser Treatments Could Spark Its Stock
"The market for home-based laser treatments is huge as a lot of people would prefer to do laser treatments at home, particularly if they can be done at lower costs," says John Buckingham, chief investment officer at Al Frank Asset Management, which owns shares. He says Palomar's new home laser systems have the potential to fire up the soggy stock over the near term.
With its strong balance sheet that's flush with $106 million in cash, or $5.70 a share, and no long-term debt, Palomar is a safe bet with little downside risk, says Buckingham, particularly with the stock now so depressed.
Body Sculpting and Tattoo Removal
After streaking to a 52-week high of nearly $18 a share on Jun. 8, 2009, the stock has gone nowhere but downhill, tumbling to as low of $8.90 by Dec. 17, 2009. A leap in June was due to the Food and Drug Administration's approval for over-the-counter marketing of Palomar's wrinkle treatment. But the stock hasn't done much since December, creeping up to just $9.45 a share on Mar. 4, 2010.
However, Buckingham, whose portfolio represents long-term value stocks, is confident that over the next three to five years, Palomar will hit $22, based on the company's leadership in laser treatments. Palomar's products are aimed not only at treating wrinkles and hair removal at home but also equipment used by doctors and specialists for skin resurfacing, body sculpting and removing veins from legs and tattoos.
"Analysis of Palomar's product revenues shows that U.S. sales improved during the fourth quarter of 2009 despite the constrained credit markets" says Anup Mehta, analyst at Canaccord Adams, the global capital markets group of Canaccord Financial, who rates the stock a buy.
Palomar partnered with Gillette, a unit of Procter & Gamble (PG), in 2003 to develop a light-based home-hair removal product for women, which the FDA approved in 2006. Gillette paid Palomar $9.1 million to develop the product, plus $2 million in milestone payments upon getting the FDA approval.
Palomar also partnered with Johnson & Johnson (JNJ) in 2004 to develop laser products for acne, cellulite and aging skin. But J&J pulled out of the agreement in October 2009. Palomar still retains the rights to the technology for the products and says it's determined to go it alone in developing and marketing the product, and hopes to get another partnership with a major company.
"There is pent-up demand for laser products and procedures," says Mehta, who adds that an easing in credit as the economy recovers will likely result in increased revenues.
Analyst Dalton Chandler of investment firm Needham believes that because Palomar's sales topped his and other analysts estimates it suggest that "we have found a bottom and that we can look forward to some gradual improvement over the course of 2010" for the company's laser products. He figures Palomar will return to profitability in 2011, earning 5 cents a share on revenues of $93.4 million, vs. an estimated loss of 33 cents a share in 2010 on sales of $67.8 million. The company lost 59 cents in 2009 on revenues of $60.6 million. Chandler rates the stock a buy, and expects it will double in price in 12 months, to $18 a share.
Some Big-Name Buyers
Palomar isn't widely followed on Wall Street, with only six analysts tracking it. Four of them recommend buying the stock, and one suggests selling it. One analyst tags it a hold. But some big institutional managers are high on Palomar, including Fidelity Management, which has accumulated a 4.8% stake; Vanguard Group, which owns 4.5%; and BlackRock Fund Advisers, with 4.4%.
Palomar has surely seen better days. But if even one of its array of new laser treatments catches on, investors may find much better days ahead for the stock.