Viemed Health is a buy, Beacon Securities says

Better than expected top and bottom lines for its third quarter for Viemed Health (Viemed Health Stock Quote, Chart: TSX:VMD) is indication of a long-term growth cycle in which the company is still in the early stages, says analyst Doug Cooper of Beacon Securities, who in a client note on Monday maintained his “Buy” recommendation and C$9.50 target price for VMD.

Home medical equipment company Viemed Health released its Q3 ended September 30, 2018, on Monday, reporting revenues of $17.2 million, a 38 per cent increase, and Adjusted EBITDA of $4.4 million, representing 26 per cent of revenues. (All figures in US dollars unless noted otherwise.)

Cooper says revenue and EBITDA were better than expected and highlighted the company’s positive cash flow generation and the 34.5 per cent year-over-year growth in patient count and the notable increase in revenue per patient.

“Rev/patient in Q3 was a record $3,153 ($12,612 annualized versus our current annual expectation of $12,300) and driven by the growth of its non NIV businesses such as Home Sleep and CPAP. As those segments continue to grow, rev/patient (defined as an NIV patient) should continue to grow,” says Cooper.

The analyst points to three reasons why he sees VMD in the early innings of a growth cycle; (1) with approximately 1.25 million Stage 4 COPD patients in the US, and with its installed base of only 80,000 patients, there is a huge opportunity for VMD as physicians become more comfortable with its services; (2) KPMG’s completed study found better efficacy and cheaper treatment costs than alternatives for VMD’s services, which is already starting to result in more patient referrals; and (3) VMD has recently expanded marketing into three new states, bringing its total to 28.

“All of the above (better geographic coverage, better understanding of treatment efficacy and large opportunity) should translate to continued strong growth,” says Cooper. “The company provided Q4 revenue guidance of $17.9- $18.4 million, implying further y/y growth of 36 per cent and sequential growth of 7 per cent.”

The analyst has raised his revenue and EBITDA forecasts to $65 million and $17.2 million for 2018 (was $63.4 million and $17.1 million) and to $80.6 million and $21.9 million for 2019 (was $80.3 million and $21.8 million). His C$9.50 target represents a projected return of 34 per cent at the time of publication.