TransMedics-TMDX Stock Plunges 49.2% in Three Months: What's Behind the Downfall?

Stock Performance - TransMedics Group Inc (TMDX) stock has plunged 49 2% in the past three months underperforming the industry's 6 8% rise and the S&P 500's 5 7% growth [1] - Over the past three months TMDX's stock performance has been bleak compared to peers like Medtronic plc (MDT) GE HealthCare Technologies Inc (GEHC) and Abbott Laboratories (ABT) with MDT and GEHC shares plunging 3 5% and 1 8% respectively while ABT's shares gained 1 1% [7] Financial Results and Outlook - TransMedics announced its third-quarter 2024 results with total revenues declining 5% sequentially driven by a 3% sequential drop in U S revenues and a 45% sequential drop in international revenues (OUS) [3] - The company narrowed its 2024 financial outlook expecting revenues for the full year to be in the range of $428 million-$ 432 million representing growth of 77-79% from the comparable 2023 period compared to the prior outlook of $425 million to$ 445 million [4] - The Zacks Consensus Estimate for 2024 revenues is currently pegged at $430 3 million indicating a 78 1% improvement from the comparable 2023 period [4] Operational Challenges - TransMedics' OUS revenues declined 40% year over year and 45% sequentially in the third quarter of 2024 due to the lumpiness of international orders and the lack of broad national reimbursement outside of the United States [8] - The company faces rising costs of fuel parts and maintenance due to inflation directly impacting its growing logistics and aviation infrastructure Additionally inflation-induced wage increases could have raised costs for hiring and training pilots and other staff for the National OCS Program (NOP) [12] Macroeconomic Impacts - The Federal Reserve's aggressive interest rate hikes have increased the cost of capital for TransMedics raising the cost of financing and pressuring profitability Higher interest rates also reduce the present value of future cash flows particularly for growth-oriented companies like TransMedics [9] - In the current macroeconomic climate characterized by high-interest rates and economic uncertainty growth-oriented stocks like TransMedics face valuation compressions as investors prioritize profitability over growth [10] - A strong dollar makes U S -based exports more expensive for international customers which could partly explain the sharp decline in OUS revenues [11] Product Development and Reimbursement - TransMedics has a long history and broad experience in the development of warm machine perfusion for organ preservation and continues to add technological and usability enhancements to its OCS technology platform [15] - The OCS has been reimbursed by the Centers for Medicare & Medicaid Services and private insurers during TransMedics' clinical trials and continues to be reimbursed in the commercial setting [16] Stock Valuation and Estimates - TransMedics' forward 12-month P/S of 3 9X is lower than the industry's average of 4 7X and its five-year median of 9 9X [17] - Estimates for TransMedics' 2024 earnings have remained flat at$ 1 00 in the past 60 days [18] Activist Short-Selling Allegations - Activist short-selling firm Scorpion Capital alleged that TransMedics was involved in kickbacks billing fraud and unreported device failures The report also accused the company of steering damaged or rejected organs to select transplant centers engaging in off-label use of its OCS and overcharging hospitals through its NOP [13]