A volatile few years for CRH Medical Corporation (CRH Medical Corporation Stock Quote, Chart, News NASDAQ: CRHM) will culminate with a stellar 2020.
So says Beacon Securities analyst Doug Cooper, who in a research update to clients today raised his target price on the stock from (US) $6.00 to $6.50, implying a return of 95 per cent at the time of publication. The analyst maintained his “Buy” rating on the stock.
Cooper says the rocky ride for shareholders will soon become a smooth ascent.
“In our experience, when stocks have such extreme volatility, it generally takes about 2 years for the company to fix what may have ailed it and restore investor confidence…”
“After a dramatic share price appreciation in 2016 followed by a dramatic fall in 2017, the stock has essentially treaded water over the past 2 years at ~C$4.00,” the analyst noted. “In our experience, when stocks have such extreme volatility, it generally takes about 2 years for the company to fix what may have ailed it and restore investor confidence. Over this time period, the fundamentals improve and/or valuations come down to very reasonable levels (CRH now at ~50% discount to peers), which enables “turnaround” stories to have such strong returns. We believe this is where we are at with CRH.”
Cooper says the company’s fourth quarter results should demonstrate stability following the company’s reimbursement issue of two years ago, which he expects will be a “major catalyst” in restoring investor confidence in CRH Medical and paving the way for a stellar 2020.
The analyst says a similar thing will happen with margins.
“Management has guided to 45% in FY20, which is by far the highest in the “demographic” peer group,” he said. “Stability and predictability will result in better investor confidence and a multiple expansion. Furthermore, as it vends in some of its minority interest, sh. EBITDA as percent of EBITDA will rise to ~75% from 65%.”
Cooper adds that CRH Medical’s balance sheet is currently under-leveraged, as it has a $200-million facility with JP Morgan and lot of pending deal flow.
“M&A needs both a willing buyer and seller. After 5 years of demonstrating its business model to GI practices, we believe “sellers” are more comfortable with “outsourcing” the anesthesia side of their business,” Cooper wrote. “CRH indicated its near-term pipeline (LOIs) includes 60,000 cases (17% of current annual cases) with the funnel having well over 100,000. Coupled with better than expected organic growth of 3%, a doubling of its historic rate of rate of acquisitions (given point (b)) could result in FY20 exit run-rate of 450,000-500,000 annualized cases versus 350,000 today. We have not factored any acquisitions into our FY20 forecasts.”
Cooper believes CRH will post EBITDA of $39.3-million on revenue of $122.5-million in fiscal 2019. He expects those numbers will improve to EBITDA of $44.1-million on a topline of $129.3-million the following year.