The Nanosonics Ltd (ASX: NAN) share price had a solid start to the day but is fading in afternoon trade.
At the time of writing, the infection prevention company's shares are down slightly to $5.95.
This means Nanosonics' shares are now down 28% from its 52-week high.
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Is the Nanosonics share price good value?
According to a note out of Morgans this morning, its analysts believe the Nanosonics share price is in the buy zone.
The notes reveals that the broker has upgraded the company's shares to an add rating but cut the price target on them to $6.97.
Based on the current Nanosonics share price, this suggests there is almost 17% upside for its shares over the next 12 months.
What did the broker say?
Morgans notes that Nanosonics recently revealed its expectations for a significantly greater cost base than the broker was expecting.
It commented: "The increase in operating costs to A$90.0m is a big step up from the $70.8m incurred in FY21. The continued investment in R&D helps underpin the long-term growth prospects in the business. Our previous research note assumed a cost base of A$82.5m which was clearly below company guidance and needed adjustment."
This has led to the broker downgrading its earnings forecasts accordingly.
Morgans explained: "We have made no changes to revenue for FY23/24, however the higher cost base results in an NPAT downgrade to A$19.0m (from A$26.9m) and to A$27.6m (from A$35.9m) in FY23/24 respectively. We note we have assumed a modest revenue contribution of A$8.3m from flexible endoscope sales staring in FY23."
While this has resulted in a lower valuation, the recent weakness in the Nanosonics share price offsets this and underpinned the recommendation upgrade.
It concludes: "We have upgraded our recommendation to Add from Hold. Despite the lower valuation and target price there is still over 15% upside to our target price which provides the opportunity to upgrade the recommendation."
