Medical Facilities Corporation (TSX:DR) remains a company with lots of upside potential, says Neil Linsdell, analyst for Industrial Alliance Securities. In a research update to clients on Friday, Linsdell reiterated his “Buy” rating and C$17.00 target price.
Specialty surgery hospital and ambulatory centre company Medical Facilities hosted an Analyst Day in Toronto on Thursday, with Linsdell reporting that the company’s joint venture called Nueterra Capital with Kansas-based NueHealth (announced in January and involving MFC’s purchasing of seven ambulatory surgical centres (ASCs)) has created a “very interesting channel” for MFC to quickly expand.
“[Managing Director, Nueterra Capital] Kevin Standefer provided a very positive view of the ASC opportunity, potentially growing from ~6,000 centres to ~10,000 over the next 10 years, with a significant number of de novo sites being developed – a core competency of NueHealth,” says Linsdell. “Of the 53 facilities currently managed by NueHealth, approximately 12 could also be good candidates for MFC’s M&A program, and could be folded into the MFC Nueterra JV.”
“We came away from the Analyst Day with further confidence in both the short-term opportunities around cost reductions and longer-term opportunities to grow revenues, both organically (incl. more urgent care clinics) and through acquisitions, including through the Nueterra JV,” says the analyst. “We see the attractive 8.2 per cent dividend yield as readily sustainable and maintain our Buy recommendation.”
Linsdell has made no revisions to his estimates, calling for MFC to produce an EBITDA in F2018 of US$98.0 million on a topline of US$411.3 million.
The analyst’s C$17.00 target is arrived at by applying a 7x EV/EBITDA multiple to MFC’s Q2/19-Q1/20 estimates and F/X rate of 1.28. The 12-month target represents a projected return on investment of 32.7 per cent at the time of publication.