Quipt Home Medical is my Top Pick, this investor says

Portfolio manager Bruce Campbell says do the math on Quipt Home Medical (Quipt Home Medical Stock Quote, Charts, News, Analysts, Financials TSXV:QIPT) and you’ll be impressed with both the growth potential and the relative bargain at which QIPT is currently trading. That’s why the stock is one of Campbell’s Top Picks for the year ahead.

“Quipt Home Medical is in the home health care business, and specifically, they’re dealing with chronically ill patients in the US and they have a number of different services that they provide. The company has been firing on all cylinders here,” said Campbell, president of StoneCastle Investment Management, who spoke on BNN Bloomberg on Friday where he called Quipt one of his three top picks.

It’s been a heck of a year for Quipt which has been growing by leaps and bounds both organically and through a string of acquisitions. The company, previously known as Protech Home Medical, offers in-home monitoring and disease management services including in-home respiratory care solutions. And it’s been extending its reach across the US, entering four new states in July of this year through acquiring three separate businesses. That was after a dual listing on the TSXV as well as the NASDAQ exchange, a one-for-four share consolidation and name change in May which Quipt says offered a new brand for new markets across the country.

“We are excited to build our brand into local markets, dedicated to exceptional patient care, and expect a smooth integration process that will allow us to move quickly to capture the many synergies available to us,” said Chairman and CEO Greg Crawford in July.

Then came more acquisitions this fall, with the company reaching and then surpassing the 150,000 active patients mark, closing on a strategic acquisition in Mississippi, one in Central Illinois and then in November, the acquisition of a biomedical services company and an LOI to acquire a leading respiratory supplier in the Midwest, one with TTM annual revenues of about $13 million and a 20 per cent EBITDA margin. Along with being a respiratory supplier, the intended company would also add a new state to QIPT’s list as well as several insurance contracts and 15,000 active patients, thus bringing the company total to 170,000.

Commenting on the LOI, Crawford wrote in a press release earlier this week, “This is an extremely exciting growth period for Quipt as we see continued acceleration within the existing business and a plethora of strategic acquisition opportunities that we hope will help us scale into attractive markets across the United States.

“This acquisition target is very powerful as it services a significant metro hub in the Midwest and after closing, we plan on quickly integrating their business operations and leveraging the Company’s payor contracts across our existing Midwest locations,” he said.

All that action has had its effect on QIPT’s share price, which while now up to even for the past six months has climbed substantially in the past two weeks, going from C$6.45 per share on November 5 to now above C$8.50 by Friday’s close. 

Campbell says the signs point to further upside as well as more M&A from the company.

“Crawford and his team have done a fantastic job. They’ve been growing the company organically at ten per cent per year, but as well they’ve been strapping on acquisitions — they just announced to this week,” Campbell said.

“They still have $30 million in cash plus a credit facility to do more acquisitions. They have a fantastic margin, hey have a 22 per cent EBITDA margin, and this is where it gets really fascinating: with all of those metrics the stock trades at 6x next year’s EBITDA where most of their peers are trading at 10x to 15x,” he said.

“So, even if you took, for example, a 12x multiple the stock doubles just based on that rerating alone. So, it’s one that we like and we’ve been just recently buying and we continue to buy right now and we continue to like it. We think it goes higher as it gets rerated and more attention gets brought to the company,” he said.

Another Quipt fan would be analyst Doug Cooper of Beacon Securities. Cooper recently released a report on the company, saying the new leg in Quipt’s growth trajectory has been impressive.

“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,” Cooper wrote in a November 17 report. 

“In particular, it took QIPT a better part of a decade (from Mr. Crawford’s beginnings at Patient Aids, which was acquired in 2015) to reach $100 million this year. Its target implies it will reach $200 million within another two years. 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. With its already announced acquisitions and LOI, we believe it will exit this calendar year north of that level,” Cooper said.

Cooper reiterated his “Buy” rating and C$15.50 per share target in his report, projecting a 12-month return of 91 per cent at the time of publication.