Quipt Home Medical is set to break out, says Beacon

A record quarter has Beacon Securities analyst Doug Cooper changing his tune to the upside on Quipt Home Medical (Quipt Home Medical Stock Quote, Charts, News, Analysts, Financials TSXV:QIPT). In an update to clients on Tuesday, Cooper reiterated his “Buy” rating while raising his target price from C$13.40 to C$15.50, saying Quipt is set to transition to the next level.

Quipt Home Medical (formerly Protech Home Medical) is an in-home monitoring equipment and medical supplies and services company which is focused on acquiring companies servicing chronically ill patients in the US with multiple disease states. 

The company delivered fiscal third quarter 2021 earnings on Monday for the period ended June 30, 2021, showing revenue up 41 per cent year-over-year to $26.2 million. Organic growth represented seven per cent of that uptick, while year-to-date, organic growth has been 11 per cent of its topline growth. (All figures in US dollars except where noted otherwise.)

Quipt said recurring revenue made up over 75 per cent of its total revenue, while on earnings Adjusted EBITDA for the Q3 was up 21 per cent year-over-year to $5.3 million. 

Over the quarter, Quipt acquired three separate entities with combined operations in California, Missouri, Arkansas and Mississippi and combined unaudited trailing 12-month revenues of $5.5 million. Since the end of the Q3, Quipt also announced the acquisition of a Missouri-based business with unaudited TTM revenue of $5.5 million. Overall, Quipt now has 145,000 active patients, 18,500 referring physicians and 59 locations across 15 states.

“We continue to produce exceptional results, highlighted by our robust organic growth, driven by the strong execution displayed across the organization, comprised of over 600 dedicated team members,” said CEO and Chairman Greg Crawford in a press release.

“Our record third quarter financial and operating results are a direct result of our ability to leverage ongoing technology implementation and workflow processes to improve our operations. Strength in the underlying business combined with secular tailwinds and a bullish regulatory landscape provide us extraordinary opportunity to scale aggressively,” he said.

On the Q3 numbers, Cooper said they came in better than forecasted and they point to accelerated growth ahead for Quipt.

“This was a very significant quarter on many fronts and leaves the company in the best position in its history and ready to move to the upper echelon of service providers in the country,” Cooper wrote.

The analyst calculated that QIPT should hit $150 million in revenue in fiscal 2023, and that wouldn’t include any further acquisitions.

“QIPT noted that its organic growth over the past nine months has been 11 per cent versus an industry average of six per cent. Our calculations, however, indicate that its organic growth in Q3 versus Q2 was closer to 4.5 per cent or 18 per cent annualized. Our experience has been that it is hard to grow to $100 million in revenue but once that threshold is breached, growth to $200 million is easier and quicker,” he said.

On M&A, Cooper said Quipt now has ample liquidity (at $33 million in cash and $20 million of untapped credit facilities) to accelerate its acquisitive program in its target market, a highly fragmented and still-developing space, according to Cooper.

“We believe it is VERY significant that Quipt has hired Mr. David Chester to lead its M&A strategy,” Cooper wrote. “Mr. Chester comes from AdaptHealth where he was also in charge of M&A. We don’t think one hires someone of Mr. Chester’s pedigree to pursue $5 million ‘tuck-under’ deals. Over the coming months, we would expect more and larger transactions. M&A is focused on scale and expanding its footprint.”

By the numbers, Cooper is now calling for QIPT to hit fiscal 2021, 2022 and 2023 revenue of $103.4 million, $128.1 million and $140.9 million, respectively, and fiscal 2021, 2022 and 2023 EBITDA of $22.5 million, $28.2 million and $32.4 million, respectively. Adjusted EPS is expected to go from $0.18 per share in fiscal 2021 to $0.37 in fiscal 2022 to $0.49 in fiscal 2023.

“Putting all of this together, QIPT is set for very strong growth over our projection period through organic and non-organic growth. We are both raising our FY21 and FY22 forecasts as well as introducing our FY23 estimates,” Cooper said.

Cooper ended his report saying that US home medical equipment peer Apria Healthcare is up 50 per cent since it reported its last quarter and is trading at all-time high. 

“QIPT is set for its breakout,” Cooper said.

At the time of publication, Cooper’s new target of C$15.50 represented a projected one-year return of 65 per cent. Since its four-for-one share consolidation in May, QIPT’s share price is currently up six per cent.