CRH Medical has 63 per cent upside, Beacon Securities says

Following the company’s third quarter results, Beacon Securities analyst Doug Cooper is still bullish on CRH Medical (CRH Medical Stock Quote, Chart: TSX:CRH).

On October 31, CRH reported its Q3, 2018 results. The company posted EBITDA of $8.5-million on revenue of $28.7-million, a topline that was up 29 per cent over the same period last year.

“We are very pleased with our strong third quarter and year-to-date financial and operating results,” CEO Edward Wright said. “Revenue growth and operating margins remain very strong, with year-to-date adjusted shareholder EBITDA more than $25-million. This shows the impressive strength of our business model and ability to execute especially considering the impact of the CMS changes that went into effect on Jan. 1, 2018. We are also excited to announce our most recent MAC partnership with Digestive Health Specialists. This transaction follows the successful execution of our first MAC acquisition, which resulted in a transaction in July, 2018, and furthers our goal of becoming the pre-eminent provider of GI anesthesia. Our infrastructure and expertise in assisting gastroenterology anesthesia practices plays a role in better patient care.”

Cooper says CRH is still a cheap stock when compared to its peers.

“This is the 3rd consecutive quarter of strong results after the impact of the re-imbursement cuts. From a seasonality perspective, Q3 represents ~25% of annual revenue. As such, this is representative of the run-rate of the company (albeit not fully inclusive of Lake Erie’s $2.1 million revenue and $1 million EBITDA). Consequently, its current run-rate if $116m/$35m. At an EV of ~$300 million, the stock is trading at 8.5x LQA and 7.8x our FY19 forecast. This valuation is now at the lower-end of its peer group. As such, we continue to believe the stock reflective a positive risk-return.”

In a research update to clients today, Cooper maintained his “Buy” rating and one-year price target of (US) $5.35 on CRH, implying a return of 63 per cent at the time of publication.

Cooper thinks the company will post EBITDA of $34.7-million on revenue of $110.1-million in fiscal 2018. He expects those numbers will improve to EBITDA of $38.5-million on a topline of $123.9-million the following year.