Coronary CT Adoption And AI Platform Will Support A Stronger Long Term Outlook

Catalysts

About HeartFlow

HeartFlow provides an AI based software platform that supports detection, diagnosis, management and treatment planning for coronary artery disease using cardiac CT imaging.

What are the underlying business or industry changes driving this perspective?

• Growing use of coronary CT angiography as a front line test for chest pain, supported by guidelines and higher reimbursement, increases the pool of scans that can run through HeartFlow's platform and can support revenue growth as case volumes scale.
• The transition of HeartFlow Plaque Analysis to a Category 1 CPT code in 2026, with defined Medicare payment rates in both clinic and hospital settings and commercial coverage already at 57% of U.S. lives, sets up a path for more routine clinical use that can add a new revenue stream and support gross margin mix over time.
• Expanding the sales footprint focused on referring cardiologists, with the TAM team targeted to double by year end 2025, is aimed at deeper referral activation across the existing installed base and can support continued case growth and operating leverage as fixed commercial costs are spread over higher revenue.
• The launch of PCI Navigator into interventional cardiology, backed by registry and study data and integrated with existing HeartFlow tools, broadens the platform's role across the full CAD care pathway and can increase revenue per account while supporting account retention and potentially higher net margins.
• Large scale clinical datasets such as the DECIDE registry and plaque staging data from FISH&CHIPS, together with an AI platform trained on over 110 million images, help reinforce physician and payer confidence in image based CAD management and can support sustained adoption that benefits long term revenue visibility and earnings potential.

Assumptions

How have these above catalysts been quantified?

• Analysts are assuming HeartFlow's revenue will grow by 23.5% annually over the next 3 years.
• Analysts are not forecasting that HeartFlow will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate HeartFlow's profit margin will increase from -77.4% to the average US Healthcare Services industry of 6.9% in 3 years.
• If HeartFlow's profit margin were to converge on the industry average, you could expect earnings to reach $21.1 million (and earnings per share of $0.2) by about January 2029, up from $-125.4 million today.
• In order for the above numbers to justify the price target of the analysts, the company would need to trade at a PE ratio of 241.8x on those 2029 earnings, up from -22.5x today. This future PE is greater than the current PE for the US Healthcare Services industry at 54.4x.
• Analysts expect the number of shares outstanding to grow by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.25%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• If coronary CT angiography adoption slows versus historical low 20% growth in the underlying category that management referenced, HeartFlow could see fewer new scans flowing into its platform, which would directly affect revenue growth and the ability to scale fixed costs.
• HeartFlow is emphasizing Plaque Analysis as the next wave of growth, but management does not expect material adoption until coverage exceeds 70% of U.S. lives and physician education catches up. Any delay in coverage expansion or slower than expected clinical uptake could reduce the long term contribution to revenue and gross margin mix.
• The company is rapidly expanding its territory account manager sales force and investing heavily in R&D and clinical studies. If these investments do not translate into sustained case growth, operating leverage could stall and the company may experience continued operating losses and pressure on earnings.
• HeartFlow is positioning PCI Navigator and the broader end to end platform as critical tools across the full coronary artery disease care pathway. If interventional cardiologists or hospitals prefer established invasive workflows or competing tools, adoption could be limited and constrain revenue per account and future margin expansion.
• Management states that the company is well capitalized to fund operations through profitability and is targeting cash flow profitability within 3 years of the IPO. If case volumes, pricing, or reimbursement trends fall short of what is needed to support that path, the company could face extended periods of net losses and may eventually need additional capital.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The analysts have a consensus price target of $38.6 for HeartFlow based on their expectations of its future earnings growth, profit margins and other risk factors.
  
• In order for you to agree with the analysts, you'd need to believe that by 2029, revenues will be $304.9 million, earnings will come to $21.1 million, and it would be trading on a PE ratio of 241.8x, assuming you use a discount rate of 8.2%.
  
• Given the current share price of $33.14, the analyst price target of $38.6 is 14.1% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.