T2 Biosystems Inc. (NASDAQ: TTOO) may be relatively unknown to most investors. The $331 million market cap, an average volume of just under 100,000 shares and a very tiny group of analysts covering the stock has this diagnostics company largely unknown. Yet, Janney Capital markets is seeing extreme value here, with as much as 50% upside predicted.

T2 Biosystems was reiterated as Buy at Janney, and the firm said that it sees a fair value estimate of $25.00 for this stock, versus a $16.50 prior close. The call is on the heels of management meetings, and it was noted as having biotech upside but in a diagnostics company. Investors should at least keep in mind that Janney is the most optimistic of the few analysts covering T2.

What really stands out here is that the analysts covering T2 Biosystems see perhaps even far higher upside. After fresh management meetings, Janney’s Paul Knight and Brian Kipp said:

The company continues to show confidence in 30 hospital placements this year following FDA approval last year. T2 technology allows the diagnostic of candida blood infection in 2-4 hours from the current standard of 3 to 4 days. Patient survival increases from 60% to 90%. While our fair value is $25 per share, it is based on a 2017 estimated value of $52 per share.

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Additional summarized and condensed data in this very positive call was as follows:

• T2 Biosystems reiterated its guided 30 T2Dx instrument placements in 2015. With 25 of the top-450 hospitals completing their ROI analysis in the first quarter, T2 is in a favorable position to meet exceed forecast placements in 2015.
• T2 is also in active discussions with 25% of the top-450 U.S. hospitals, which it believes can generate $2 to $5 in cost savings for every $1 spent on the T2 nuclear magnetic resonance technology that allows direct detection of candida.
• IMS Health already has released its economic impact study of rapid candida at $829 per patient: a top-450 hospital with 5,100 annual high-risk patients could save $5.8 million per year.

Janney further went on to say:

The announced T2 collaboration with Canon Life Sciences demonstrates the ability of T2’s management to pinpoint a significant unmet clinical need; engage in a JV to externally fund the R&D cost; and expand the company’s addressable market by $700 million to $3.7 billion. Still in very early stages and likely a 2017-2018+ revenue story, we discuss the Lyme disease opportunity in more detail in a previous note.

Our fair value of $25 per share is based on a 24% discount rate on a 5x revenue multiple on FY18. The future value would be $52 per share. The 5x revenue multiple is based on peer group valuations and historical diagnostic acquisitions.

T2 Biosystems shares have not reacted to the report at all. Perhaps that is because this was not a new rating. T2 shares were down fractionally at $16.41 Wednesday in very thin trading volume. It has a 52-week range of $13.40 to $24.50 and a consensus analyst price target of $22.67. Just keep in mind that only three analysts cover this stock, with price targets of $20, $23 and $25.

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