Akumin has a huge upside, says Clarus Securities

Clarus Securities analyst Noel Atkinson still likes what he sees out of Akumin Inc. (Akumin Stock Quote, Chart, News, Analysts, Financials NASDAQ:AKU) and has reiterated his “Buy” rating while raising his target price in an update to clients on September 2.

Atkinson’s latest analysis comes after Akumin officially completed the $820 million acquisition of Alliance Healthcare Services, a California-based provider of radiology and oncology services for hospitals, health systems and physician groups.

Headquartered in Plantation, Fla., Akumin provides outpatient radiology and oncology solutions to more than two million patients across 1,000 hospitals and health systems in 46 states following the completed acquisition, which Atkinson labelled a transformative step for the company.

“Akumin becomes a leading operator of hospital radiology clinics in partnership with hospital systems and the largest operator of mobile imaging (PET/CT and MRI) systems that are mounted in custom semi-trailer units that become ‘portable clinics,’” Atkinson said.

The purchase was funded by multiple sources, including $42 million in equity, $350 million in debt and equity commitments from Stonepark, net proceeds from Akumin’s $375 million offering of seven-year notes at 7.5 per cent, as well as cash on hand. (All figures in US dollars.)

The deal also sees the company add $715 million in new debt to be repaid between 2028 and 2033, as well as $62.6 million in capital leases and other obligations, 

“When we announced our acquisition of Alliance and the plan to bring these two great companies together, we shared our belief that this combination is very exciting in the context of a changing healthcare ecosystem – continuing not only to shift toward outpatient, price-transparent, value-based care, but also toward increasingly integrated hospitals, health systems and physician groups,” said Riadh Zine, Chairman and Co-CEO in the company’s September 1 press release. “Today, we celebrate our first steps together as a powerhouse in outpatient healthcare solutions, and a catalyst for continued healthcare transformation in the U.S.”

The acquisition has prompted Atkinson to alter his financial metrics with immediate effect on account of one month of Alliance influence, as he now projects $113.6 million in revenue for the third quarter of 2021, a 42.2 per cent change from his initial estimate of $79.9 million, with adjusted EBITDA now revised to $26 million and a 22.9 per cent margin (previously $17.7 million and 22.1 per cent margin) for the quarter.

From an annual perspective, Atkinson now projects Akumin to reach $448.3 million in revenue for 2021, a 48.8 per cent increase from the initial $301.3 million estimate, as well as a potential year-over-year increase of 78.4 per cent. Meanwhile, Atkinson now has adjusted EBITDA for 2021 projected at $101.9 million instead of the initial $66.2 million estimation, while the adjusted EBITDA margin is now forecast at 22.7 per cent instead of 22 per cent.

2023 sees significant changes to Atkinson’s projections, with revenue more than doubling to a projected $783.6 million from the initial $329.7 million estimate and representing a projected year-over-year increase of 74.8 per cent, while the adjusted EBITDA projection has been revised to US$201.9 million, a 140 per cent change from the previous estimate of $84.1 million and a 98 per cent potential year-over-year increase, producing a margin of 25.8 per cent instead of 25.5 per cent.

The one downside Atkinson notes to the deal is that related depreciation and amortization charges have caused the diluted EPS projection to fall from positive to negative figures, hitting a projected loss of $1.03/share in 2022.

Atkinson’s valuation data has the Price/Sales multiple forecasted to drop from 0.7x in 2021 to 0.4x in 2022, while the EV/adjusted EBITDA multiple is forecasted to go from 13.8x in 2021 to 7x in 2022, and the price-earnings ratio becomes negative with the revised diluted EPS projections.

Atkinson said the completed acquisition has Akumin set up to be a major player in the healthcare industry for the foreseeable future.

“The Alliance acquisition is nothing short of transformative for Akumin, adding substantial scale in radiology, a new high-margin business line in oncology clinics, and diversification of payers,” he said. “The Company continues to trade at a substantial discount to imaging clinic peer RadNet, which still has more revenue and less leverage but now has similar 2022E adjusted EBITDA to Akumin.”

With the update, Atkinson has reiterated his “Buy” rating and moved his target from $6.00 to $8.00 which at the time of publication represented a projected one-year return of 217.5 per cent. Akumin’s stock price has dropped 23.4 per cent for the year to date, reaching a high point of $4.77/share on March 22.

Akumin’s share price took a hit after the company announced in mid-August that it was going to miss the deadline of August 16 to file its second quarter 2021 financials. Management had said in a press release that it needed more time to complete the interim financial report as it needed additional information and analysis related to credit losses for prior years. Since the announcement, Akumin has been delivering bi-weekly default status reports.