Clarus Securities analyst Noel Atkinson has slightly altered his outlook on Akumin Inc. (Akumin Stock Quote, Chart, News, Analysts, Financials NASDAQ:AKU), maintaining his “Buy” rating, but lowering his target price from $7.25/share (all figures in this article are in US dollars, unless otherwise noted) to $7/share for a projected return of 302 per cent in an update to clients on Wednesday.
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 Alliance Healthcare acquisition, which Atkinson has called transformative.
Atkinson’s revised target price comes in the wake of a raise in the company’s target multiple from 10x the 2023 EV/adjusted EBITDA to 10.5x.
“We have nudged our target multiple up to 10.5x 2023e EV/Adj. EBITDA (from 10x), which we see as reasonable given peer group valuations and the recent acquisition of a midsized Alliance competitor for at least 12.5x pro forma TTM EBITDA,” Atkinson said.
In a recent investor update, Akumin announced its intention to spend $59 million in capital expenses to drive organic growth at its existing clinics, primarily for new radiology equipment to expand service offerings. Atkinson noted that the company also intends to migrate its independent imaging centers in Florida, Texas and Pennsylvania into joint ventures or other partnerships with health care systems. Approximately 90 per cent of that capex will be financed (presumably equipment financing).
Following the completed acquisition of Alliance Healthcare Services, which closed on September 1, Akumin acquired over $200 million in minority interests, primarily in hospital joint ventures. As a result, management is now excluding the minority interest allocation from the Adjusted EBITDA calculation and instead adding the value of the minority interests to enterprise value, which effectively reduces the remaining equity value to AKU shareholders accordingly. Atkinson noted that while the move was appropriate, it also adds a headwind to Akumin’s valuation.
The company’s most recent financial results were released on December 13, headlined by revenue of $108.2 million for the third quarter, a $45 million or 71.1 per cent increase over the third quarter of last year. On a sequential basis, revenue increased $38.7 million or 55.7 per cent over the second quarter of 2021.
“Our integration synergy initiatives are already underway,” said Riadh Zine, Chairman and Co-Chief Executive Officer of Akumin in the company’s December 13 press release. “We have also consolidated the financial planning for the combined organization, while advancing the digital transformation of the patient service delivery. With the increased scale of the company and the depth of the management team, we expect 2022 to be a milestone year as we continue to build on this solid foundation.”
Despite the overall target drop, Atkinson’s revised financial projections for the company actually show further growth beginning in 2022, where he now projects revenue of $712.8 million (previously $699.8 million), a potential year-over-year increase of 68.6 per cent compared to the 2021 forecast of $422.9 million. Looking ahead to 2023, Atkinson’s revised projection is now set at $817.2 million (previously $729.9 million), marking a potential year-over-year jump of 14.6 per cent.
“We continue to expect COVID headwinds to largely go away by summer 2022 and for Akumin to have normalized business activity,” Atkinson said in explaining the projection spike. “In light of management’s 2022 guidance (which we consider as being for “normalized’ patient volumes) and our analysis of potential growth sources for revenue and Adj. EBITDA, we have significantly increased our 2023 estimates.”
Meanwhile, while leaving his $67.5 million 2021 projection in place, Atkinson slightly lowered his adjusted EBITDA forecast for 2022 from $155.8 million to $146.7 million for a margin of 20.6 per cent, though he raised his 2023 estimate from $190 million to $203.4 million for a margin of 24.9 per cent.
From a valuation perspective, Atkinson forecasts a continuous improvement in performance, projecting the company’s EV/Revenue multiple to drop from 3.8x in 2021 to 2.3x in 2022, then to 2x in 2023. Meanwhile, Atkinson projects the company’s EV/EBITDA multiple will drop from 23.9x in 2021 to 11x in 2022, then to a projected 7.9x in 2023.
“We expect AKU to be a strong outperformer within our coverage universe in 2022 as patient volumes normalize and cost synergies start to be realized,” Atkinson said. “If Omicron can quickly pass through the U.S. population with minimal hospitalizations, then we see the potential upside to our 2022 estimates as well.”
Akumin’s stock price has dropped by 40.5 per cent over the course of 2021, peaking early at a price of C$4.77/share on March 22 and hitting a low point of C$1.90/share on December 1.