Viemed Health gets a target drop from Beacon Securities

Beacon Securities analyst Doug Cooper has clipped his expectations for Viemed Healthcare (Viemed Health Stock Quote, Chart, News, Financials, Analysts TSX:VMD), dropping his target price to C$12.25/share from C$15.00/share while maintaining his “Buy” rating in an update to clients on Tuesday.

Headquartered in Lafayette, Louisiana, Viemed provides home respiratory services to patients struggling with various respiratory diseases including COPD, the third-largest killer in the United States behind cancer and congestive heart failure, along with various neuromuscular diseases.

Cooper’s newest analysis comes on the heels of Viemed having reported its second quarter results earlier this week.

“Viemed reported its Q2/FY21 results with revenues of $27.4 million, which was in-line with its guidance,” Cooper wrote. “EBITDA of $6.7 million as margins rebounded back to 24.3 per cent versus 18.7 per cent in Q1.” (All figures in US dollars except where noted otherwise.)

Of the reported revenue, roughly $26.3 million came from the company’s core activities, with the remainder being attributed to COVID-related revenue. The core revenues represented a 14 per cent year-over-year increase, largely driven by a five per cent increase in patient count, along with an increased revenue-per-patient ratio on account of a shift in the company’s diversification strategy.

Breaking down the core revenues, 77.3 per cent came from ventilator rentals, down from 80 per cent in the first quarter and 82 per cent on a year-over-year basis, part of which can be attributed to the company’s fastest growing product category, Oxygen, which doubled its growth on a year-over-year basis. The company finished the quarter with a cash balance of $31.2 million compared to $31.0 million at the end of December 2020, with a working capital balance of $28.7 million and total long-term debt of $5.7 million compared to a debt of $6.6 million at the end of December.

“I am extremely pleased with our Company’s ability to grow our active patient count across all of our major product lines during the current quarter,” said Casey Hoyt, Viemed’s CEO, in the company’s August 3 press release. “We have once again posted extremely strong financial results, and our adherence to always putting the patient first continues to drive strong growth trends throughout the country. We continue to see treating respiratory patients in the home as a major growth segment and are seeing new patient onboardings increase as we continue to navigate through the pandemic.”

Cooper’s revisions are most prominent when looking at his financial estimates and valuation projections for Viemed. After the company posted $131.3 million in revenues for 2020, Cooper foresees revenues dropping to $114.8 million in 2021 before rebounding to $126 million for 2022.

He also foresees some fluctuation in the EBITDA figures. After reporting $35 million in EBITDA for 2020 (26.7 per cent margin), Cooper projects a drop to $25 million in EBITDA (21.8 per cent margin) before rising slightly to $29.7 million projected for 2022 (23.6 per cent margin).

Earnings-per-share is set to follow a similar path, with the rate dropping from $0.81/share in 2020 to a projected $0.23/share in 2021, then rebounding slightly to $0.37/share in 2022.

Valuation ratios appear to share a similar curve, highlighted by the price-earnings ratio being projected to skyrocket from 8.5x in 2020 to 30x in 2021 before settling back down to 18.7x in 2022. Cooper has the EV/Sales multiple remaining fairly flat by comparison, moving from 1.8x in 2020 to a projected 2.1x in 2021 before falling back to 1.9x for 2022, while the EV/EBITDA multiple is forecast to move from 6.8x in 2020 to 9.6x in 2021, then drop slightly to 8.1x in 2022.

While the company appears set to rebound financially, Cooper notes that short-term issues like a product recall from Philips on BiPaP and CPAP products could dampen growth via inventory tightness, while an audit being undertaken by the Office of the Inspector General could lead to the company having to compensate on overpayments, with a potential cost of $9 million.

“Viemed completely disagrees with the Report’s findings and does not expect to receive an overpayment determination from CMS,” Hoyt said in a May 24 press release. “The Report shows how disconnected the investigators are from the CMS Non-Invasive Ventilation clinical protocols and shines a light on the lack of understanding of the critical role the DME industry plays in providing life-saving care to COPD and Neuromuscular patients with chronic respiratory failure.”

In order to sustain the encouraging momentum of the second quarter, Cooper believes Viemed must continue growing its patient base and diversifying its product portfolio.

“Given the efficacy of NIV as well as an increase in its sales reps and new territories, we believe a 20 per cent growth in patient count is sustainable,” Cooper wrote. “Furthermore, the continued growth of non-vent business is growing total rev/vent patient. As noted, total rev/patient in the quarter was a record.”

Viemed Health finished Thursday trading at C$8.33/share on the Toronto Stock Exchange, up four cents from Wednesday’s close. For the year to date, Viemed stock is down 16 per cent. At the time of publication, Cooper’s C$12.25 target represented a projected one-year return of 37 per cent.