Shares of Nevro (NVRO) are on the rise after the company announced that CEO Rami Elghandour has stepped down and as several analysts applauded the selection of Keith Grossman as the new chief executive. Morgan Stanley analyst David Lewis double upgraded the stock to Overweight, saying this is a "new beginning" for the company, while his peers at Bank of America Merrill Lynch and Wells Fargo also upgraded Nevro to Buy-equivalent ratings on the new "turnaround CEO."
NEW CEO: On Tuesday after market close, Nevro announced that Keith Grossman has been appointed President and CEO of the company and a member of the Board of Directors, effective March 19. Grossman succeeds Rami Elghandour, who has stepped down as President, CEO and a director of Nevro. The company also appointed two new independent directors, Elizabeth Weatherman and Kevin O'Boyle, effective immediately, and accepted the resignation of Ali Behbahani as a director. The leadership appointments follow constructive engagement with Broadfin Capital, a significant Nevro stockholder, the company noted. Pursuant to the agreement between Broadfin and Nevro, Broadfin will vote all of its shares in favor of each of the company's Board nominees at the 2019 Annual Meeting. Following the changes announced, the Nevro Board consists of nine members. Additionally, the company said it is suspending revenue guidance while it assesses the business under its new leadership.
'NEW BEGINNING': In a research note to investors, Morgan Stanley's Lewis upgraded Nevro to Overweight from Underweight, saying that the management changes announced Tuesday and the new platform disclosed at NANS 2019 represent "a new beginning" with a material change in strategy. The analyst also noted that he sees the changes as evidence that the board is more committed to execution and shareholder returns. Lewis acknowledged that Nevro still has commercial disruption and limited catalysts over the next six months, but following several datasets at NANS 2019, the analyst no longer sees this as an overhang for shares. He thinks investor enthusiasm around SENZA-PDN and SENZA-NSRBP will build in the second half of 2019 ahead of 2020 readouts. Lewis also raised his price target on Nevro shares to $70 from $41. Meanwhile, his peer at Canaccord raised his price target on the stock to $62 from $46, while reiterating a Buy rating on the shares. Analyst Jason Mills recommended adding to or building positions on the post-close announcement that Keith Grossman will immediately take on the roles of president and CEO.
TURNAROUND CEO: Following the news, Bank of America Merrill Lynch analyst Bob Hopkins upgraded Nevro to Buy from Neutral and raised its price target to $70 from $50. The analyst told investors that he believes the new CEO Keith Grossman is the "best SMid cap commercial turnaround CEO in MedTech" and his skill set is well suited to address Nevro's current challenges combined with a healthy addressable market and full pipeline. Voicing a similar opinion, his peer at Wells Fargo also upgraded the stock to Outperform from Market. Analyst Lawrence Biegelsen noted that Grossman has successfully turned around the previous two companies he led as CEO, and said he is "highly confident" the executive will be successful in turning around Nevro. Additionally, Biegelsen believes the company has a good product, participates in a healthy, underpenetrated market, and has a "strong and under-appreciated pipeline." The analyst also raised his price target on the shares to $75 from $50. Noting that she believes Nevro is now positioned for a turnaround with the appointment of Keith Grossman, BMO Capital analyst Joanne Wuensch upgraded Nevro to Outperform and raised her price target to $67 from $46.
POSITIVE FOR SHARES: Not as bullish, JPMorgan analyst Robbie Marcus reiterated a Neutral rating on Nevro but noted that he views the stepping down of CEO Rami Elghandour as a positive for the shares. The analyst highlighted that the announcement follows two challenging years for the company, with "several notable stops and false starts ultimately culminating in the stock falling from grace." With the appointment of Keith Grossman as the company's new CEO and the addition of two "experienced, well-regarded" appointees to the board, the stock will likely receive a "notable bump," he contended. However, Marcus argued that the suspension of revenue guidance likely means that estimates will not being moving up in the near-term, with a potential move downward as new management resets the bar going forward.
PRICE ACTION: In morning trading, shares of Nevro have gained 34% to $60.03.
Nevro
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