Protech Home Medical gets big price target raise at Raymond James

Protech Home Medical (Protech Home Medical Stock Quote, Chart, News, Analysts, Financials TSXV:PTQ) had a huge 2020, but the stock still has room to grow, says Raymond James analyst Rahul Sarugaser, who delivered a report to clients on Friday where he upped his target price from C$2.00 to C$3.00.

Ahead of fourth quarter 2020 earnings from Protech due on Friday January 29, Sarugaser has kept his estimates as is, calling for revenue of $27.0 million (versus the consensus estimate at $26.6 million) and EBITDA of $5.5 million (consensus $5.7 million).

“We update our valuation methodology to an analysis of EV/EBITDA (replacing EV/Revenue). With this shift, we raise our target price to $3.00 and maintain our Outperform rating,” Sarugaser wrote.

PTQ spent much of 2020 heading northward and finished the year up 66 per cent. That was after a 76-per-cent return for 2019. So far in January, Protech is even picking up the pace, having shot up 29 per cent.

Sarugaser, who initiated coverage of Protech on December 15, 2020, said his past projections might have been a little on the safe side.

“In our initiation of coverage of PTQ, we had used a 2021 EV/Revenue to project a price target of $2.00. We recognize, in retrospect, that we may have been too conservative,” Sarugaser wrote.

“So, today we shift our methodology to an analysis of 2021 EV/EBITDA versus peers, which, in turn yields a valuation of $3.47 per share. We, conservatively, round this number down, and raise our target price to $3.00. Given this target price represents a ~50-per-cent return from the current share price of $2.05, we maintain our Outperform rating,” he wrote.

At press time, Sarugaser’s $3.00 target represented a projected return of 46 per cent.

Headquartered in Wilder, Kentucky, Protech Home Medical is a Durable Medical Equipment (DME) company providing clinical respiratory equipment across 48 locations in ten US states. Protech has equipment such as nebulizers, oxygen concentrators, CPAP and BiPAP units, respiratory DME and services and non-invasive ventilation equipment, supplies and services. The company focuses on patients with heart or pulmonary disease, sleep disorders, reduced mobility and other chronic conditions, with about 110,000 current active patients and delivery of over 250,000 pieces of equipment annually.

In his coverage launch, Sarugaser highlighted the growing US DME market, which is expected to widen at between five and six per cent year-over-year through the next decade, as well as Protech’s recipe for driving up recurring revenue.

“Beyond the reliable provision of high-quality equipment, PTQ’s secret sauce is its commitment to patient outcomes through the implementation of compliance-enhancing technologies across its operations,” Sarugaser wrote in his coverage initiation.

“This creates stickiness among physicians and hospitals that drives recurring contract revenue and steady organic growth in PTQ’s existing jurisdictions, while inorganic growth drives the company’s entry into attractive new markets. PTQ’s strong track record of identifying accretive and synergistic acquisition targets—and it’s time-tested capability of driving scale-borne efficiencies during the integration of those newly acquired companies—gives us confidence in this company’s ambitious growth plans,” he said.

Earlier this month, Protech announced it had applied to list on the NASDAQ, with CEO Greg Crawford calling the event a reflection of the company’s efforts during a period of rapid growth.

“This marks a significant milestone in our Company’s life cycle, and we are excited about substantially increasing our exposure and accessibility to the U.S. capital markets sphere and to U.S. based institutional and retail investors,” said Crawford in a January 13 press release. “A NASDAQ listing, coupled with our aggressive expansion plans is expected to continue to lead us down the path of becoming a premier technology driven clinical respiratory company in the United States.”

With the press release, Protech said it has over $28 million in cash and an untapped $20-million revolving credit facility, putting it in the strongest position in its history to match its level of capital markets exposure to its organizational growth.

Protech reported on November 30 its preliminary financials for its fiscal fourth quarter 2020 (ended September 30), showing revenue in the range of $26.1 – $26.5 million and adjusted EBITDA in the range of $5.6 – $6.1 million. That would compare to revenue and EBITDA in Q4 2019 of $19.5 million and $3.7 million, respectively, and Q3 2020 revenue and EBITDA of $25.9 million and $5.5 million, respectively.

The company said its Q4 2020 showed robust organic growth which ended up being offset by a weaker US dollar.

“We are extremely satisfied with the record preliminary financial performance in the fourth quarter and the foundation that has been built for continued aggressive growth in 2021 and beyond,” said Crawford in a press release.

“We have seen our sleep business pick up in the back half of the year, approaching levels seen early in 2020, and are optimistic the sleep business will return to and surpass pre-pandemic levels in 2021. As a whole, our business remains robust into our fiscal first quarter of 2021, our M&A pipeline is full, and we are well capitalized with our pristine balance sheet to capture the significant opportunities at our front door,” Crawford said.