Quipt Home Medical has a 55 per cent upside, says Leede Jones Gable

Douglas Loe of Leede Jones Gable is quick to support Quipt Home Medical (Quipt Home Medical Stock Quote, Charts, News, Analysts, Financials TSXV:QIPT), maintaining a “Buy” rating and target price of C$12.00/share for a potential return of 54.6 per cent in an update to clients on Wednesday.

Headquartered in Kentucky, Quipt Home Medical (previously known as Protech Home Medical) is a durable medical equipment firm focused on delivering respiratory care devices into home healthcare markets, presently providing service to more than 150,000 patients in 19 states across the United States.

Loe’s latest analysis comes after the company closed a strategic acquisition of a respiratory medical equipment distributor to expand its operational footprint in Mississippi.

“We do not know the identity of the firm, though as per Quipt’s qualitative description of the acquisition, its product mix is predominantly though not exclusively in respiratory care,” Loe noted. “65 per cent of product and payor mix are in that niche, while the rest of the firm’s operations are focused on distributing other forms of durable medical equipment that are relevant to home healthcare.” 

The acquisition, valued at $1.9 million, is expected to be accretive for Quipt, with Loe projecting the unnamed company will contribute approximately 2.5 per cent of Quipt’s total revenue based on a $105 million run rate, with a projected annual EBITDA of $500,000, which could increase to 20 per cent adjusted EBITDA from the presently reported 18.5 per cent after integration. (All figures in US dollars unless otherwise noted.)

Loe notes that the company had $30.6 million in cash available before the acquisition, meaning the deal minimally impacts the firm’s balance sheet configuration or financial risk.

The deal also brings an additional 590 physicians into the Quipt network, according to the company’s release.

“We continue to focus on accretive acquisition candidates that fit our stringent acquisition criteria to build scale across the United States,” said Greg Crawford, Chairman and CEO of Quipt in the company’s October 5 press release. “Our proven integration strategy allows us to make tuck-in acquisitions like this to fill in attractive geographies, obtain important insurance contracts, add to our active patient base, and build out our referring physician network.”

“On the heels of our entrance into Mississippi in July, this transaction further strengthens our overall interconnected healthcare network in the region and mirrors our expansion progress in Missouri, both of which will serve as a foundation for other new states, where we can grow organically and through economical bolt-on acquisitions. As we look at the last 90 days, we have completed four acquisitions with combined revenue of over $13.5 million, expanding us into four new states,” Crawford added.

The company has been aggressive on the acquisition front in 2021, most notably with the acquisition of Florida-based Mayhugh Medical Equipment, Georgia-based Sleepwell LLC, as well as a number of respiratory care providers in Arkansas, California, Mississippi and Missouri.

Loe’s financial projections are largely unchanged from his previous analysis, as he projects the company will reach nine figures in revenue in 2021 at $101.6 million for a potential year-over-year growth of 38.6 per cent, followed by another projected jump to $133.2 million in 2022, marking a potential year-over-year increase of 31.1 per cent.

Meanwhile, Loe also projects the company’s EBITDA to go up slightly ahead of schedule on account of margin performance, projecting EBITDA of $22.2 million and a 21.9 per cent margin for 2021, followed by an increase to $30.3 million and a margin of 22.7 per cent in 2022.

From a valuation perspective, things are looking good for Quipt, with Loe projecting the EV/EBITDA multiple to drop from the reported 12.1x in 2020 to a projected 8.4x in 2021, then again to 6.2x in 2022. Meanwhile, with EPS projected to turn positive in 2022 at $0.36/share, Loe projects the price-earnings multiple for the first time for 2022, posting a forecast of 16.6x.

Overall, Loe continues to believe Quipt is on the right path forward and can continue on its present growth path, even in spite of a Class I recall on specific ventilators, BiPAP, and CPAP machines made by Philips Respironics, which partially supplies Quipt.

“We remain optimistic that recent ventilator supply constraints infused into Quipt’s supply logistics through the Philips/Respironics recall last quarter,” Loe said. “Even though Philips/Respironics is a dominant competitor in this device category, this should be substantially mitigated by Quipt’s existing ventilator inventory and by the availability of alternative suppliers.”

Overall, Quipt’s stock price is up 19.2 per cent for the year to date, though it has settled down after reaching a high point of C$10.08/share on February 10.