Pending LOI’s for Quipt Home Medical, Leede Jones Gable reports

Look for accelerated revenue growth over the coming year from Quipt Home Medical Corp. (Quipt Home Medical Stock Quote, Charts, News, Analysts, Financials TSXV:QIPT) says analyst Douglas Loe of Leede Jones Gable. In an update to clients on December 16, Loe maintained his “Buy” rating and target price of $10.00/share (all figures in US dollars unless otherwise noted) for a potential return of 68.5 per cent at the time of publication.

Founded in 1993 and headquartered in Kentucky, Quipt Home Medical Corp. (previously known as Protech Home Medical Corp.) 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 disclosed its preliminary data ahead of a formal release of its updated quarterly financials.

“While we wait on the release of full financial data in early CQ121, ironically after FQ122 financial data will have already been generated if not yet quantified, revenue guidance for the quarter was essentially in line with our projections,” Loe said. “We have clear expectations that pending LOIs on several previously announced acquisitions will formally close in this quarter or next, subsequently augmenting our prospective annual revenue forecasts by at least US$27M after the respective LOIs are formally converted into acquisitions.”

Quipt anticipates revenue being somewhere in the range of $27.6 million and $28.1 million, which would put it relatively in line with the Leede Jones Gable estimate of $28.3 million. Meanwhile, the company provided EBITDA guidance in the range of $5.3 million and $5.6 million in the quarter, which Loe noted was slightly below the Leede Jones Gable projection of $6.4 million, though the guidance is mostly in line with the overall 2021 projection of between $21.1 million and $21.4 million in EBITDA, with Loe attributing the lower EBITDA projection to one-time acquisition costs.

“Our efforts in building a national clinical respiratory organization focused on superior patient care are being realized, and our continued robust preliminary financial results are a testament to the ongoing operational progress made throughout the year,” said Greg Crawford, Chairman and CEO of Quipt in the company’s December 16 press release.

“Our team is focused on integration efforts across our recently acquired businesses, and we are pleased with the progress to date. We have a robust platform that allows for organic and inorganic growth opportunities to be efficiently layered on to generate economies of scale, and we will continue to stay nimble with the opportunities in front of us,” Crawford wrote.

The company also has a busy pipeline in play, with two LOIs focused on respiratory care companies with TTM of US$27 million, as well as three other acquisitions to expand its operations.

From a regulatory standpoint, Quipt is in position to benefit from a multi-society report published in Chest in November that called for changes to Centers for Medicare & Medicaid Services (CMS) regarding the coverage of noninvasive ventilation and home mechanical ventilation, noting that  the CMS has been reliant on determining payments based on equipment description as opposed to patient needs.

“Expert suggestions in the report were calling for modernization of these coverage determinations to align with current best practice. Recall in Apr/20 that the CMS removed non-invasive ventilators from its 2021 competitive bidding program for durable medical equipment, which we view as a positive for the space,” Loe wrote.

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.

“For now, we will maintain our existing forecasts until the LOI transactions become part of Quipt’s operating framework,” Loe said. “Furthermore, we await geographic and operating details on the pending LOIs to assess impact on our revenue/EBITDA forecasts, specifically to determine if any EBITDA margin growth through cost synergies is achievable and over what timeframe.”

From a valuation standpoint, Loe sees the company’s EV/EBITDA multiple dropping from the reported 11.1x in 2020 to a projected 7.8x in 2021, then dipping again to a projected 5.7x in 2022. 

Meanwhile, after projecting EPS of $0.32/share, Loe introduced a P/E multiple projection in 2022, setting the bar at 16.6x.