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Source: Sema4 Holdings

Sema4 Holdings (SMFR) Stock Is a Good Buy After the CMLF Merger

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Jul. 23 2021, Published 8:08 a.m. ET

On Feb. 10, Sema4 Holdings (SMFR) agreed to go public by merging with SPAC CM Life Sciences (CMLF) at an implied pro forma equity value of approximately $2.6 billion. Recently, the companies completed their business combination. What's SMFR’s stock forecast after the CMLF merger?

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CMLF public shareholders and sponsors will own 21 percent of Sema4, while PIPE (private investment in public equity) investors will own 14 percent. The combined company will be led by Sema4 founder and CEO Eric Schadt.

sema holdings smfr stock forecast after cmlf merger
Source: Sema4 Holdings
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When will Sema4 start trading?

Sema4 completed its business combination with CMLF on July 22. Sema4’s Class A common stock and warrants will start trading on the Nasdaq under the ticker symbols “SMFR” and “SMFRW,” respectively, from July 23 onwards. The merger was approved by CMLF shareholders on July 21.

Sema4’s stock forecast

No analysts cover Sema4 stock, but given that it's a leading healthcare information provider, analysts will likely start covering it soon.

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Based on CMLF’s current price, Sema4 has an enterprise value (EV) of $2.4 billion. Based on this value and Sema4’s projected total revenue, its valuation multiples for 2021 and 2022 are 9.1x and 6.7x, respectively. Since Sema4 is a high-growth stock, the company’s 2023 EV-to-sales multiple of 4.8x looks much more attractive. Natera, Invitae, and Exact Sciences are trading at NTM EV-to-sales multiples of 18.0x, 11.1x, and 11.9x, respectively.

sema holdings smfr stock forecast after cmlf merger
Source: Sema4 Holdings
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Sema4 is a good stock to buy.

CMLF stock’s 57 percent pullback from the 52-week high has opened a discount entry opportunity to Sema4, which has bright growth prospects. Sema4 provides genomic and clinical data insights through AI. The company seeks to make precision medicine a standard of care.

Sema4 has collected more than 10 million patient records with significant consent rates. The Sema4 platform uses machine learning and AI-powered tools to analyze the database to help physicians proactively diagnose and manage the disease. Sema4 has entered into various partnerships with health systems to build genomics programs, including Evanston and AdventHealth.

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Sema4 expects to generate sales of $265 million in 2021 and forecasts its sales growing by 36 percent in 2022. Between 2020 and 2023, Sema4 expects its revenues to grow at a CAGR of 38 percent and reach $504 million in 2023. The company forecasts its gross margin expanding to 54 percent by 2023 from 22 percent in 2020.

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As part of its merger with CMLF, Sema4 will receive around $500 million in gross cash proceeds to pursue its growth plans. The amount includes $350 million in PIPE. The PIPE investors include Casdin Capital, Corvex Management, Fidelity Management, BlackRock, and Deerfield Management.

What happens to CMLF after the merger?

CMLF stock will immediately convert to Sema4 stock after the merger deal closes. As a result, CMLF investors became shareholders in Sema4.

What happens to CMLF warrants after the merger?

The CMLF warrants will become exercisable 30 days after the transaction is completed. The exercise price of the CMLF warrant, like for other SPAC warrants, is $11.50.

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