Protech Home Medical is a double from here, M Partners says

Another record quarter from Protech Home Medical (Protech Home Medical Stock Quote, Chart, News TSXV:PTQ) has M Partners analyst Paul Piotrowski staying positive on the medical equipment company.

In an update to clients Tuesday, Piotrowski reviewed Protech’s latest financials and reiterated his
“Buy” rating and $2.30 target price, which at press time represented a projected 12-month return of 97 per cent.

Kentucky-based Protech distributes durable medical equipment (DME) including end-to-end respiratory solutions for patients across ten states in the US and has 85,000 active patients and 17,000 referring physicians. The company, which had announced preliminary numbers for its fiscal third quarter 2020 on July 20, delivered the full Q3 results on Monday, showing revenue up 28 per cent year-over-year to $25.9 million and adjusted EBITDA up 47 per cent year-over-year to $5.5 million.

Over the quarter, PTQ said its customer base grew by 19 per cent year-over-year and the number of equipment set-ups grew by 11 per cent, with management saying the demand remained strong for its respiratory equipment.

“The acceleration of the need for in-home healthcare solutions is being felt across the industry, and powerful tailwinds continue to be felt at our front door. With the strongest balance sheet in our history, we are poised to take advantage of opportunities to significantly scale our business. We believe this pandemic has underscored the importance of our mission, which is to be a dynamic home healthcare provider, focused on end-to-end respiratory care, providing the communities in which we serve incredible
high-touch service, education, and easy access to the extraordinary care the company provides,” said CEO and chairman Greg Crawford in a press release.

Piotrowski said the top and bottom line numbers for the quarter matched his estimates, with the $25.9-million in revenue coming out a bit ahead of his $25.5-million estimate and the adjusted EBITDA of $5.5 million (and margin of 21 per cent) being equal to his estimates.

“Protech delivered record revenue ($100 million annualized run rate) and adjusted EBITDA margins (21 per cent) driven by increased demand for ventilators, oxygen concentrators, CPAP resupply and other supplies business. Also, beginning in the second half of Q3, demand for sleep products began to rebound as stay-at-home orders were lifted across Protech’s operational footprint. Overall, PTQ made significant strides
increasing its customer base to 37,128 unique patients (up 19 per cent year-over-year), respiratory resupply set-ups/deliveries to 14,436 (up 31 per cent year-over-year) and equipment set-ups to 57,551 (up 11 per cent year-over-year),” Piotrowski wrote.

The analyst noted in his commentary a letter of intent announced by Protech on August 11 to acquire a Midwest-based respiratory care company. Piotrowski said the target, which generated $5 million in trailing revenue, positive adjusted EBITDA and positive net income, will enhance PTQ’s presence in the Midwest, has a diversified payer based and referral sources and increases PTQ’s active patient count by over 3,000.

“Despite its enviable positioning in the uncertain economic environment, Protech continues to trade very cheaply relative to peers at 5.1x our 2020 EBITDA estimate and 4.3x 2021 EBITDA. As PTQ continues to make meaningful acquisitions, we expect the valuation gap to narrow,” Piotrowski said.