An aging population and an increase in chronic illnesses in the United States means Protech Home Medical (Protech Home Medical News, Stock Quote, Chart TSXV:PTQ) has plenty of runway, says M Partners analyst Andrew Hood.
In a research update to clients today, Hood initiated coverage of PTQ with a “Buy” rating and a one-year price target of $2.40, implying a return of 212 per cent at the time of publication.
Founded in 1993, Protech is a Kentucky-based distributor of durable medical equipment such as oxygen therapy and sleep apnea devices. The analyst says the company is hitting its stride.
Protech Home Medical is increasing recurring revenue
“Protech’s business model focused around servicing chronic illnesses on monthly rentals and resupply provides stable recurring revenues as it approaches $100M in total annual sales,” Hood says. “As the patient base and cross-selling opportunities continue to grow, recurring revenues should become an increasingly large proportion of revenue. PTQ’s cash flow-positive business can fuel future acquisitions and technology investments.”
Hood thinks PTQ will post Adjusted EBITDA of $16.0-million on revenue of $90.0-million in fiscal 2019.
“PTQ shares trade at a substantial discount of 3.9x 2019 EBITDA vs. peers at 14.9x,” the analyst adds. “The recent collapse in the share price can primarily be attributed to a cybertheft in May. In June, Protech obtained a default judgment on the fraudster, and should receive the majority of the stolen funds in a few months. Despite these positive developments, the share price has not returned to its levels prior to the theft. We believe over time, with Protech’s high-margin, recurring revenue business and accretive acquisitions, shares should re-rate closer to peers.