Analyst Douglas Loe explains why Protech Home Medical is a “Top Pick”

Echelon Capital Markets analyst Douglas Loe remains bullish on Protech Home Medical (Protech Home Medical Stock Quote, Chart, News TSXV:PTQ) after the company pre-announced strong quarterly numbers.

In an update to clients Monday, Loe called PTQ a Top Pick for the third quarter and reaffirmed his “Buy” rating for the stock.

Medical equipment company Protech supplies in-home monitoring and disease management services and currently operates in 12 states in the US and 33 locations, with deliveries and equipment setups to more than 80,000 patients.

The company announced on Monday preliminary financial results for its fiscal third quarter 2020, ended June 30, with revenue expected to come in between $25.6 million and $25.9 million and adjusted EBITDA in the range of $5.3 million to $5.5 million.

Those numbers compare to $24.1 million in revenue and $4.9 million in adjusted EBITDA for the company’s second quarter 2020. (All figures in US dollars.)

Getting to a $100-million run-rate in revenue shows the strength and resiliency in its business, remarked CEO and chairman Greg Crawford.

“We continued to see strong momentum across our business in the third quarter, and to date, we are seeing overwhelming industry tailwinds which bodes well for Protech over the near and longer term. Leveraging our first-rate infrastructure and strongest financial position in the history of our company, we expect to be increasingly aggressive in growing our market share through inorganic and organic growth opportunities,” said Crawford in a press release.

Protech’s preliminary numbers were looking good to Loe, who had been calling for revenue of $25.8 million and EBITDA of $5.0 million. The preliminary EBITDA margin of between 20.5 and 21.5 per cent would be ahead of Loe’s 19.5 per cent estimate.

“We are highly encouraged that Protech has been able to achieve revenue/EBITDA growth objectives in a challenging economic macro-environment, though with its core operations clearly targeting a necessary medical market niche in respiratory care that we thought could be less vulnerable to operational softness in pending quarters,” wrote Loe.

“That thesis is now well-supported by FQ320 data that are expected to meet our revenue expectations while exceeding our EBITDA/margin projections as indicated above.

Protech is solidly meeting operational performance that justifies our Top Pick status, as it did in Q220 when we also ascribed Top Pick status to the stock (generating Mar-to-Jun/20 return of 82.3 per cent in the process),” Loe said.

On a comparative basis, Loe thinks PTQ is trading at a discount to its peers. Loe pegs Protech at 4.6x EV/EBITDA fiscal 2021 consensus estimates versus its US-based and rest-of-the-world home medical distribution peers at an average of 18.8x, while PTQ’s Canadian peers are trading at an average of 13.4x.

With this update, Loe kept his “Buy” rating and one-year price target of C$2.50, which at press time represented a projected return of 114 per cent.

Protech finished 2019 up 62 per cent, while so far in 2020 the stock is up 23 per cent.