Procept BioRobotics: Positioning Into FY22 Earnings (NASDAQ:PRCT)

Investment Summary

Following our last publication on PROCEPT BioRobotics Corporation (NASDAQ:PRCT) shares have entered into congestion and supply has nudged the stock ~12% below our entry point. Despite a large correction to the $32 zone, PRCT immediately caught a bid as the leg down was immediately followed by a swift reversal back above the longer-term down trend in situ since November.

Our prostate cancer and benign prostatic hypertrophy (“BPH”) coverage is extensive, and we have been playing this sub-sector for the last 12-18 months. I strongly encourage you to check out our most recent coverage of the additional names in this domain within our coverage universe, and then look back to previous coverage on the same:

• EDAP: Potential Crossover Of HIFU To Endometriosis Additional Inflection Points
• Profound Medical: Upsides Leading Into FY22 Earnings, Revise To Buy

We remain constructive on PRCT, based on the several reasons discussed in our last publication. To name a few:

1. PRCT’s AquaBeaM robotic system (“AB”). It uses Aquablation therapy, a meaningful differentiator as it utilizes heat-free waterjet resection.
2. Aquablation is also differentiated as it can treat BPH lesions of all sizes
3. It follows a capital allocation and recurring revenue model. Hence, the length of asset returns is extended with additional sales tacked onto the end product.
4. High cadence of AB instillations with 95% YoY growth in revenue from new and existing instillations.
5. AB is attracting high conversion rates in procedure volumes from transurethral resection of the prostate (“TURP”) and photoselective vaporization of the prostate (“PVP”) procedures.
6. CMS finalized its FY23 outpatient rates providing a Level 6 APC code for Aquablation at 150bps above the FY22′ rates to ~$8,590 per procedure.
7. Management guides for 100% YoY top-line growth for FY22.

These points in mind, we checked how to position for PRCT heading into its full-year numbers later this month. Net-net, we reiterate PRCT a buy. We look forward to providing additional coverage at this stage.

PRCT advanced technical analysis

The leakage formed within the longer-term downtrend in January, and this was followed by a sharp reversal and shares have now poked back above the trendline shown in Exhibit 1. It has set new highs and is tracking higher and so we have to delve deeper to gauge where to look next for the stock into its earnings.

Exhibit 1. PRCT brief leakage then sharp reversal rally above resistance line

It’s best to gauge this over different time frames. Looking at the 60 minute cloud chart, the price line and lagging line are testing the cloud base having crossed to the upside in late January. PRCT has shown good confluence in bouncing from the cloud base in late January after the reversal. The 60 minute chart looks into the coming days, hence, we see support forming at ~$39, and remain bullish above the cloud for the time being.

Exhibit 2. Bullish above the cloud on 60 minute time frame

One key risk is that PRCT has yet to cross back above the cloud on the daily chart, that looks to the coming weeks. This deserves some attention. We need to see both the price line and lagging line cross above the cloud in order to be overwhelmingly bullish on this time frame. Here, we see potential support at $36, and resistance forming at ~$42. Hence, we are looking for PRCT to cross above the cloud to scale in further on the long side.

Exhibit 3. Yet to cross back above the cloud on daily timeframe

Meanwhile, the stock has finally caught another round of weekly inflows after the last 7 weeks of outflows. Note, last time this happened at pace in ~Feb–March FY22, PRCT caught a heavy bid and ran up the page, with momentum continuing for months afterwards. This adds to our bullish rating.

Exhibit 4. Finally catching weekly inflow after 7-weeks of outflows

PRCT Market generated data for price objectives

Tracing the fibs down from the December FY22 high to the low in January [excluding drop/reversal mid-month] we see the stock has retraced ~23% of the move. It has tested 38% of the leg down but failed twice, so the coming weeks will be a test of the coming price action. If it lifts higher, the next targets are $40, $42, $43 then $45. Should it break lower, we’d be looking to $36. Note, these align well with the Ichimoku support/resistance zones described earlier.

Exhibit 5. Testing 23%–38% of the leg down

Looking at the weekly market profile since December, the market has found good equilibrium at the $38–$39 zone, with the point of control (“POC”) holding this mark 4 out of the last 7 weeks. As a reminder, the POC is the price at which PRCT spent the most time each week, indicative of the market’s fair value over each period. Note, demand has been active at depth below each POC with buyer’s heavily active below these points. In fact, the bulk of volume has been below the POC in almost every week since December. Moreover, there’s been adequate time-price opportunity in the value zones shown via the red lines next to the market profile. From this chart, any point from $37–$39 looks to be an attractive entry point.

Exhibit 6. Weekly market profile illustrating strong demand at depth below each POC

Zooming out on the same chart, we looked further back into early December. Given the depth of buying support shown above, we believe there’s scope for the stock to fill the gap and re-rate to the previous weekly POC’s of $41 then $42 into the coming weeks.

Exhibit 7. Heavy demand below each value zone provides good case for PRCT to re-rate back to previous POC’s

Consequently we have upside targets again to $53, and if the stock crosses the cloud on the daily chart, we’d be looking to trade these targets by scaling in further on our long position. The upside targets have served us well in the past. As a key risk, there are also downside targets present and that’s why we’d prefer to look at the coming weeks of trade to gauge additional sizing and whether to scale in further. For new buyers, we believe the current market price is still an attractive entry point.

Exhibit 8. Upside targets to $53.5

Risks and Trade Summary

Net-net, we continue to rate PRCT a buy heading into its FY22 earnings. Market generated data is supportive of current and new investors entering long in our opinion. We retain our upside target of $55 from the previous publication.

With that, the key risks that investors must realize before proceeding include:

1. Company missing sales guidance in its upcoming FY22 results, ultimately reducing prospects for revenue growth next year.
2. Inflationary pressures erode operating margins, scaling back management’s growth initiatives.
3. A broad market reversal adding downside pressure to the PRCT share price.
4. Macroeconomic pressures that impact the broad indices.
5. Volatility has the potential to wipe out liquidity if stops are placed tightly below the entry price.

It is imperative for investors to consider these risks before making any investment decisions.