Patient Home Monitoring still has triple-digit upside, says Mackie

Plans to spin off its business into separate equipment and service concerns have given Patient Home Monitoring (Patient Home Monitoring Stock Quote, Chart, News: TSX:PHM) a bump in its share price, but Mackie Research Capital analyst Russell Stanley thinks the stock still has boatloads of upside.

Yesterday, Patient Home Monitoring announced its board had approve plans to split the company into two units, one that would be made up of the company’s interests in respiratory disease solutions and the other focused on medical equipment. Management says it expects the two companies will have separate TSX Venture exchange listings by year’s end.

“The work during the past three quarters has significantly strengthened PHM’s businesses to the point where they can more aggressively go after the growth opportunities created by the changing U.S. health care market,” said outgoing chairman Michael Dalsin. “The decision to separate into two market-leading companies is the final step in the restructuring plan. It will provide each new company with the independence, focus, financial resources and flexibility they need to adapt quickly to market and customer dynamics, while generating long-term value for shareholders. In short, by transitioning now from PHM to two new companies, created out of our successful restructuring efforts, we will be in an even-better position to compete in the market, support our patients and their health care providers, and deliver maximum value to our shareholders.”

Stanley notes that the respiratory disease spinoff will be comprised, essentially of the Sleep Management acquisition the company made in acquired in June of last year. He believes the separation will bring focus to each company.

“While both business units serve similar end markets, which made their initial combination look attractive, it has become clear that they differ materially in their growth strategies, capital allocation and overhead requirements,” says the analyst. “Their separation should allow each company to focus on its respective strengths.”

In a research update to clients today, Stanley maintained his “Buy” rating and one-year price target of $0.50 on Patient Home Monitoring, implying a return of 122 per cent at the time of publication.

Stanley thinks PHM will post Adjusted EBITDA of $7.7-million on revenue of $138.8-million in fiscal 2016, numbers he expects will climb to EBITDA of $27.3-million on revenue of $149.5-million.