CRH Medical is “very cheap” right now, says Beacon Securities

Better than expected first quarter results have Beacon Securities analyst Doug Cooper upgrading CRH Medical (TSX:CRH) to a “Buy”.

On Monday, CRH reported its Q1, 2018 results. The company earned (US) $3.18-million on revenue of $24.67-million, a topline that was up 16 per cent over the $21.27-million the company reported in the same period last year.

“We are extremely pleased with our first quarter results, which were positively impacted by the continued successful management and organic growth realized in the 16 anesthesia transactions we have integrated into CRH, in particular those acquired in 2017,” CEO Edward Wright said. “The integration of Shreveport, our most recent acquisition, and future acquisitions will continue to positively impact our business as we move forward.”

Cooper notes that while CRH Medical’s Q1 revenue was in-line with his expectations, the company’s EBITDA figure of $8.3-million easily bested the $6.0-million he had modeled. The analyst thinks the company has turned a page.

“With its first quarter in the books post re-imbursement cuts, we believe investors now have the information they need to model the company with better confidence, which will result in a higher valuation multiple –one more in-line with industry peers at 12x EV/EBITDA,” he says. “We have slightly lowered our rev/case estimate to $350 (from $360) but modeled higher segment margins. As such, we are lowering our FY18 revenue to $101m (from $104m) but raising our sh. EBITDA forecast to $31m (from $26.6m). For FY19, we are introducing rev/sh. EBITDA of $100.7m/$35m based on rev/case of Based on that FY19 EBITDA forecast, the stock is trading at 8x EV/EBITDA – well below its peer group average. With greater visibility on margins, we believe this is very cheap.”

In a research update to clients today, Cooper upgraded CRH Medical from “Hold” to “Buy” and raised his one-year price target on the stock from (US) $2.75 to $5.00, implying a return of 63 per cent at the time of publication.