Buy CRH Medical for a double, Beacon Securities says

After fourth quarter results that were better than he expected, Beacon Securities analyst Doug Cooper has raised his price target on CRH Medical Corp. (CRH Medical Stock Quote, Chart TSX:CRH).

On Wednesday, CRH reported its Q4 and fiscal 2018 results. In the fourth quarter, the company posted shareholder EBITDA of $10.8-million on revenue of $32.0-million.

“Two thousand eighteen was a record year for revenues and, most importantly, adjusted operating shareholder EBITDA. We are extremely pleased with our results considering the headwind we faced this year with the reduction in anesthesia reimbursement rates as a result of changes announced by the Centers for Medicare & Medicaid Services in 2017,” CEO Edward Wright said. “We knew this was going to be a challenging year as we implemented the lower reimbursement rates, and I think it is fair to say that not many people expected us to produce these kinds of financial results. It is a testament not only to our track record as a valued partner and reputation in the GI community, but to our dedicated team of employees.” Mr. Wright continued, “We look forward to continued growth in 2019.”

Cooper says CRH’s valuation has become extremely attractive in light of better execution that has been met with a middling share price performance.

“After a 4th consecutive better-than-expected quarter and with the reimbursement issue in the review mirror, which should lead to good y/y growth in FY19, we are surprised the stock has not performed better,” the analyst says. “In fact, the stock has traded sideways for the past 18 months. Based on our FY19 sh. EBITDA forecast of $40.7m (up from $38.5m previously) but knowing that acquisitions could push that to ~$45-$46 million, the stock is trading at 6.7x EV/EBITDA and under 6x if they execute on its announced acquisition strategy. This is as cheap a multiple on CRH
shares as we have seen since its original acquisition of GAA in FY14 and as such, sets up a great entry point in our opinion.”

In a research update to clients today, Cooper maintained his “Buy” rating, but raised his one-year price target on the stock from (US) $5.35 to $6.00, implying a return of 104 per cent at the time of publication.

The analyst thinks CRH will post EBITDA of $40.9-million on revenue of $129.8-million in fiscal 2019. He expects those numbers will improve to EBITDA of $41.5-million on a topline of $132.4-million the following year.