Respiratory equipment supplier Viemed is a Buy, says Beacon Securities

Beacon Securities analyst Doug Cooper sees nothing but tailwinds for respiratory equipment supplier Viemed Healthcare (Viemed Healthcare Stock Quote, Chart, News TSX:VMD), whose business is benefitting on a number of fronts from increased demand due to COVID-19.

In an update to clients Thursday, Cooper reasserted his “Buy” rating and raised his target price from $9.00 to $12.50 per share, which at press time represented a projected 12-month return of 76 per cent.

Lafayette, Louisiana-based Viemed has seen its share price rocket upwards in recent weeks as investors catch onto the dovetailing of Viemed’s home medical equipment supply business with current needs in healthcare as agencies across the United States face stressors related to the COVID-19 pandemic currently ravaging the country.

Viemed, which provides home respiratory services to patients dealing with a range of respiratory diseases including COPD and various neuromuscular diseases, provided a corporate update on April 6 which included a raise of its first-quarter guidance.

Management said the company is working with US agencies and health systems across the US to help transition patients with chronic respiratory failure and other issues “out of the hospital quicker in order to free up valuable hospital beds for COVID-19 patients.”

Cooper said the pandemic has created a “perfect storm” in a good way for Viemed, pointing to a number of factors.

First, chronic patients are being moved out of hospitals to home treatment some of whom will be using VMD-offered products; second, US Centers for Medicare & Medicaid Services (CMS) and Medicare have relaxed rules to make it easier for clinicians to prescribe respiratory-related devices and equipment and added more flexibility for patients to be treated at home; third, VMD has recently starting
working with US Veterans Hospital, which is now accelerating it push to keep patients out of hospitals; fourth, VMD has started its telehealth pilot, which could fare well in the current environment, and fifth, CMS is now less likely to cancel or postpone the competitive bidding program for non-invasive ventilators, which was to start on January 2021 and would have been a risk-contributor to VMD.

Cooper commented on his increased guidance, which has risen from $22.3 million in revenue for the Q1 to $23.8 million and would represent 31 per cent year-over-year growth and 11 per cent sequential growth.

“The increased revenue is not only being driven by an increase in patients but also by the sale of medical equipment to hospitals and state governments. Such deepening of relationships with hospitals around the country, both existing ones and establishing new ones, are very significant as they represent future referrals to be tapped as VMD opens-up new locations around the country,” Cooper said.

“Given the recent increase in its Q1 guidance and our belief that such momentum will continue, we are raising our FY20 forecast to $101 million/$27.8 million (from $97 million/$25.2 million). We are also introducing FY21 estimates that include 20 per cent patient growth with rev/EBITDA of $120.7 million/$33.3 million,” he said.

Cooper estimated that VMD is currently trading at 5.6x EBITDA while traditionally healthcare service companies trade in the range of 8-12x, and thus, he thinks that VMD should trade “at a minimum of 10x given its growth and market position.”