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Quipt Home Medical has more upside to come, says Beacon

Beacon Securities analyst Doug Cooper has stayed the course on Quipt Home Medical Corp. (Quipt Home Medical Stock Quote, Charts, News, Analysts, Financials TSXV:QIPT), although Cooper thinks there’s likely more upside to come. In an update to clients on Wednesday, the analyst maintained a “Buy” rating and target price of C$15.50/share for a projected one-year return of 91 per cent.

Founded in 1993 and headquartered in Kentucky, Quipt Home Medical Corp. (previously known as Protech Home Medical Corp.) provides in-home monitoring equipment and disease management services including end-to-end respiratory solutions for patients, with a focus on a highly fragmented and developing market of small privately-held US companies servicing chronically ill patients with multiple disease states.

The stock has been jumping this week, and Cooper’s latest analysis comes after Quipt announced it had signed a letter of intent to acquire a strategically important respiratory company in a major midwestern city.

The transaction, which is expected to close in the next 60 days, figures to be a positive addition for the company, as its acquisition target comes with TTM revenue of $13 million with a 20 per cent EBITDA margin. The acquisition would also break new ground for Quipt, as it would provide entry into a new state with 15,000 active patients to give the company 170,000 clients in total, along with several insurance contracts. (All report figures in US dollars except where noted otherwise.)

“We are delighted to enter this segment of the market, a logical fit for us given the growing number of patients, and referral partners in our network, as well as the burgeoning amount of equipment deliveries we complete every year,” said Greg Crawford, Chairman and CEO of Quipt in the company’s November 17 press release. “Our robust operating engine allows us to synergistically add a new service offering to the platform, which can be rolled out efficiently throughout the entire organization. The opportunity to include annual preventative maintenance and repair services for respiratory equipment is timely and we feel we can penetrate new and existing long term care facilities, hospital systems and other medical facilities with this additional service.”

Cooper projects decent growth for the company in the years to come, starting with a forecast into nine figures in 2021 at $103.4 million, followed by a move to a projected $128.1 million in 2022 for potential year-over-year growth of 23.9 per cent, then improving to a projected $140.9 million in 2023 for potential year-over-year growth of 10 per cent.

From an EBITDA perspective, Cooper projects the figure to be $22.5 million in 2021 for a margin of 21.8 per cent, followed by a jump to a projected $28.2 million in 2022 for a projected 22 per cent margin, then moving to a forecasted $32.4 million in 2023, producing a margin of 23 per cent.

However, Cooper also made note of updated management guidance, namely a new annual run rate target ranging between $180 million and $190 million by the end of 2022, accompanied by EBITDA projected somewhere between $38 million and $43 million. Cooper noted that, with an implied compound growth rate of 10 per cent, that would put revenue at $200 million with $45 million EBITDA in 2023, or approximately 40 per cent above the current Beacon Securities targets.

“In our view, this is not only a realistic goal, but QIPT has the current balance sheet to achieve this target,” Cooper said.

Looking at the valuation multiples, Cooper projects the company’s EV/Sales in a positive manner at 1.7x in 2021, then lowering to a projected 1.4x in 2022 and dropping further to a forecasted 1.2x in 2023. The EV/EBITDA multiple also forecasts favourably, with Cooper projecting the multiple at 7.7x in 2021, then dropping to a projected 6.4x in 2022 and 5.4x in 2023.

Meanwhile, on account of positive EPS projections growing as high as $0.49/share in 2023, Cooper projects the price-earnings ratio beginning in 2022 at 17x, with a drop to a projected 12.7x in play for 2023. 

Overall, Cooper continues to believe Quipt is growing twice as fast as the industry itself (10 per cent compared to a five per cent industry average), with existing relationships helping to mitigate the ongoing supply risk from Philips, while also allowing the company to gain market share against some of its smaller competitors.

“We believe the market should recognize that QIPT has a history of execution and achieving its targets, most notably its target set earlier this year of exiting 2021 at a run-rate of $130 million in revenue,” Cooper said. “With its already announced acquisitions and LOI, we believe it will exit this calendar year north of that level.”

“While we are not changing our forecast until the LOI is finalized, we believe they have a significant upward bias as noted above. Given its recent execution and strong balance sheet, such a company should trade 10-12x EBITDA, which would imply a C$19.00 stock on its potential fiscal 2023 forecast,” he wrote.

Quipt’s stock price peaked at $10.08/share on February 10 but has been on the upswing after bottoming out at $6.45/share on November 5.

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About The Author /

Geordie Carragher is a staff writer for Cantech Letter
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