Viemed Health’s quarter was better than expected, Beacon says

Beacon Securities analyst Doug Cooper continues to like Viemed Health (Viemed Health Stock Quote, Chart, News TSX:VMD), maintaining his “Buy” rating and C$12.25/share target price for a potential return of 74 per cent in his latest update to clients on Wednesday.

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 third quarter results earlier this week.

The company’s quarterly financials were headlined by $29.3 million in revenue (all report figures in US dollars except where otherwise noted), which included $27.8 million in core revenue for a 12 per cent year-over-year increase, and the remaining $1.5 million coming from COVID-related sales.

Cooper noted that 76.5 per cent of the company’s revenue in the quarter came from ventilator rentals, down from 80 per cent in the same quarter of 2020, which Cooper believes is the result of a successful product diversification strategy coming into play. Meanwhile, the company reported revenue of $3,394 per active vent patient, a six per cent year-over-year increase to set a new record for the company.

From an EBITDA perspective, the company reported it at $7.4 million for the quarter, up from $6.7 million in the previous quarter and $5.3 million in the first quarter of 2021.

“We are excited to report another record breaking quarter despite headwinds associated with the Delta variant,” said Casey Hoyt, Viemed’s CEO in the company’s November 1 press release. “The resiliency of our workforce and the strength of our relationships has driven our continued growth during these unprecedented times. The nationwide sales training programs conducted during the previous quarters have concluded and are expected to give our sales force new products to add to our superior service model. As we look forward, we continue to believe that our ability to provide technology enabled healthcare in the home setting will create enormous value and positive patient outcomes.”

However, despite the company’s overall positivity, Cooper notes that Viemed remains at odds with the U.S. Office of the Inspector General over its audit into claims relating to 100 of the company’s non-invasive ventilation at home patients.

The report recommends that VieMed refund the federal government $29.1 million in Medicare overpayments from the four-year auditing period, though in its response on May 24, VieMed contends that the report ignores each patient’s diagnosis and supporting documentation, and used clinical guidance that runs contrary to the standards set out by the Centers for Medicare and Medicaid Services.

“Growing its patient base and diversifying its product portfolio are critical in maintaining the VMD growth thesis,” Cooper said. “While the company seems to be back on-track from a growth and margin perspective, the OIG Audit issue remains unresolved. Management indicated that it will be appealing the latest decision within the coming weeks. If it is not resolved in its favour within the next few months, the appeals process could drag out another 18-24 months.”

The majority of Cooper’s financial projections have gone unchanged despite the new report, as he still forecasts the company’s revenue to drop to $114.8 million in 2021 for a 12.6 per cent change year-over-year, though he projects a small rebound to $126 million in 2022, a potential year-over-year increase of 9.8 per cent.

However, Cooper did raise his EBITDA expectations for both 2021 and 2022, as he now projects $26.3 million in EBITDA for 2021 (previously $25 million) before a jump to a projected $30.8 million in 2022 after previously estimating $29.7 million.

Cooper’s valuation data also suggests Viemed is holding steadily, as he projects minimal movement in the company’s EV/Sales multiple from 1.4x in 2020 to a projected 1.6x in 2021 before lowering to a projected 1.5x in 2022. The EV/EBITDA multiple projections provided by Cooper also put Viemed in a vital state, as he projects a rise to 7x in 2021 before dipping to 6x in 2022, which presents a trading discount in relation to Apria, one of its peer group, which trades at 7x on the same metric.

Meanwhile, with drops in the company’s projected EPS including a move from $0.81/share in 2020 to a projected $0.26/share in 2021 before rebounding to $0.40/share in 2022, the P/E multiple shows a bit more volatility, with Cooper projecting a jump from the reported 6.6x in 2020 to 20.5x in 2021 before settling down slightly to 13.6x in 2022.

Overall, Viemed Health’s stock price has fallen by 28.3 per cent for the year to date, consistently dropping after reaching a high point of C$13.64/share on February 19, though it recently bottomed out at C$6.91/share on October 27.