Atossa Therapeutics Inc (ATOS)

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Atossa’s Shares are Undervalued

http://finance.yahoo.com/news/atos-pure-play-breast-care-141500427.html

We are re-initiating coverage of Atossa Genetics with an Outperform rating. Our 12-month price target is $5.50 per share.

Atossa is an emerging medical diagnostics company with a focus on breast care. The Company currently has three sources for revenue generation: pharmacogenetics testing, FullCYTE breast aspirator and ForeCYTE breast aspirator distribution in the EU.

Atossa also holds 148 issued patents and 19 pending patent applications directed to its products, services, and technologies. This strong intellectual property position provides long term growth for the Company in the years to come.

We think revenue will accelerate in the coming years thanks to its focused marketing strategy and continued new products/services offering. We see total revenue growing at an impressive 230% compound annual growth rate (CAGR) from fiscal 2014 to 2020 according to our financial model. We model that the Company will become profitable in fiscal 2019 with earnings per share (EPS) of $0.15 based on total revenue of $38.5 million. We forecast EPS will grow to $0.36 per share based on revenue of $55 million in fiscal 2020. This is impressive considering the relatively short history of the operations and the small size of the Company.

Based on Atossa’s strong fundamentals, we think the Company is undervalued. Currently, Atossa shares are trading at about $1.00 per share which values the Company at $25 million in terms of market cap based on 25 million shares outstanding. This is a deep discount compared to its peers. Based on our financial model, revenue will grow at amazing 230% CAGR from 2014 to 2020. Atossa will become profitable in 2019. We think Atossa shares should trade at 38 x P/E multiple which is similar to the biotech industry average P/E ratio. If we use this P/E multiple, coupled with our estimated EPS of $0.36 in 2020, discounted at 20% for five years, we come up with a price target of $5.50 per share.

One wild card for Atossa valuation is that the Company could be an acquisition target for big players. The clinical lab testing industry is quite fragmented currently, and merger & acquisition activity is looming. We all know that big players LabCorp and Quest Diagnostics are increasingly acquiring smaller players in this field. Qiagen NV, a research service company based in Netherland, entered into molecular diagnostics market in 2007 by acquiring Digene Corp. Since then, Qiagen has been quite aggressive in acquisition of other small genetic/molecular testing companies.

With the increased activity in M&A in the industry, Atossa could be an easy target for acquisition. If acquired by big players, share price of Atossa may soar