In an update to clients on Monday, Echelon Wealth Partners analyst Douglas Loe said one stock that should do well during the COVID-19 pandemic and beyond is in-home monitoring and disease management services company Protech Home Medical (Protech Home Medical Stock Quote, Chart, News TSXV:PTQ), which has core operations in respiratory care.
Cincinnati, Ohio-based Protech focuses on patients with heart or pulmonary diseases, sleep disorders, reduced mobility and other chronic conditions. The company saw an 11 per cent uptick in revenue in its most recent quarter, with a couple of recent and significant acquisitions contributing to the company’s growth strategy.
Loe said Protech represents a good play in the current environment.
“We are positioning US-based home respiratory equipment distributor Protech Home Medical as a potentially defensive equity investment to mitigate overall market softness driven by current virologic/pandemic concerns. Our investment thesis continues to assume that Protech can generate strong industry-leading EBITDA/margin in a respiratory care services niche that should be increasingly relevant to providing standard-of-care to COVID-19-infected individuals, and for mitigating the primary mode of pathology for this new infectious agent,” Loe wrote in his update.
The analyst said Protech’s supply chain of respiratory equipment sales and rental remains intact during the current crisis, enabling it meet the needs of its homecare clients, while at the same time Protech has noticed an uptick in inquiries from referral networks as patients in hospital care are discharged to home care in order to free up hospital beds in light of COVID-19.
“When Protech management last addressed capital markets, it specifically spoke to the firm’s preparedness and availability of supply within its home healthcare-focused distribution network. Our key takeaways were that (1) the firm’s supply chain remains intact and will be able to meet forecasted needs for demand and (2) that the firm is continuing to ramp up inventory purchases in order to safeguard against any lapses in supply chain,” Loe said.
Loe referred to a report by the Johns Hopkins Center for Health and Security on the existing ventilator stock in the United States, which said that US acute care hospitals own 62,000 mehcanical ventilators with 46.4 per cent of these deployed towards neonatal and pediatric patients, leaving 33,117 ventilators for adult patient use, along with an additional 98,000 ventilators that are “not full featured” but can perform basic functions during an emergency, for a total of 131,117.
Loe said that based on available data and comparing the current crisis to the 1918 flu pandemic, ventilator needs in the US “would fall far short.”
On PTQ’s valuation, Loe said the stock looks undervalued compared to its peers, even in the current capital market environment that is compressing valuations across all healthcare silos.
The analyst estimated US-based and RoW home medical equipment distribution peers are trading at 13.3x 2021 EV/EBITDA compared to Protech at 3.0x.
With his update, Loe has reaffirmed his “Buy” rating and $2.50 target, which at press time represented a projected 12-month return of 303 per cent.