Quipt Home Medical retains Top Pick status with Echelon Capital

There were top and bottom line misses in the latest quarterly numbers from Quipt Home Medical (Quipt Home Medical Stock Quote, Charts, News, Analysts, Financials TSXV:QIPT) but analyst Stefan Quenneville of Echelon Capital Markets is sticking to his “Buy” rating and target price of $11.25/share in an update to clients on Tuesday.

Originally founded in 1993 as Protech Home Medical Corp, Kentucky-based Quipt Home Medical provides in-home medical equipment and supplies and respiratory and durable medical equipment as well as chronic disease management services focusing on patients with heart and pulmonary disease, sleep disorders, reduced mobility and other chronic health conditions.

Quenneville’s updated analysis comes after Quipt reported first quarter results for its 2022 fiscal year. Quipt’s quarterly report was headlined by $29.5 million in revenue (all report figures are in US dollars), representing a 30 per cent year-over-year increase, though the figure still came in below the Echelon estimate of $30.3 million, as well as the consensus projection of $30.5 million.

According to Quenneville, the revenue miss is attributable to supply chain issues stemming from Philips’ CPAP and BiPAP ventilator recall, which amounted to a headwind of between $1 million and $1.5 million. However, with continued demand for respiratory equipment and a growing backlog, Quenneville projects the headwinds to become tailwinds as the year progresses.

“The slight revenue shortfall is expected to be partially recouped in the second half of the year as supply conditions are expected to normalize,” Quenneville said of Quipt, which is also an Echelon Top Pick for 2022. “Nevertheless, we continue to view QIPT as a compelling opportunity for investors given its strong growth profile and operating performance in the face of supply chain challenges, its full M&A pipeline, and its attractive valuation.”

Quipt also reiterated its annual run rate revenue guidance of between $180 million and $190 million, along with adjusted EBITDA in a range between $38 million and $43 million.

Meanwhile, the company’s adjusted EBITDA came in at $6 million for a 16 per cent year-over-year increase, though the number missed on the consensus projection of $6.4 million and the Echelon estimate of $6.5 million. However, the company’s adjusted EBITDA margin drew to 20.3 per cent, a sequential improvement from the 19.2 per cent margin reported in the previous quarter.

“The continued momentum across the business shown through our record first quarter results exemplifies our ability to successfully navigate our operations through a challenging supply chain environment driving consistent business performance,” said Greg Crawford, CEO and Chairman of Quipt in the company’s February 15 press release. “Demand continues to remain at robust levels surpassing historical run-rates for respiratory equipment and services, evidenced by strength in our oxygen and ventilation therapy service lines. Inclusive of the sleep device supply constraints we remain on track for our calendar end 2022 financial outlook and anticipate a further lift as the sleep device patient backlog subsides in the second half of the year.”

Quipt also completed three acquisitions in the quarter and a fourth post-close and, after finishing the quarter with $30 million in cash on hand, Quenneville believes the company will have $20 million available after completing an outstanding executed non-binding LOI, which he expects to close in the first quarter of the calendar year.

“Given its solid cash position, along with the potential to upsize its credit facility from $20 million to $100 million should the appropriate opportunity arise, management continues to signal its intention to conduct accretive M&A to strengthen its existing network and scale into other attractive US markets,” Quenneville said. “Meaningful accretive M&A, consistent with the Company’s track record, could provide upside to our estimates and serve as a potential catalyst for the stock in both the near- and long-term.”

After breaking into nine figures in 2021, Quenneville sees Quipt continuing to build its revenue in 2022, with the $147.2 million projection presenting a potential year-over-year increase of 43.8 per cent.

Meanwhile, Quenneville estimates the company’s implied adjusted EBITDA margin to remain fairly steady, with the implied 21.7 per cent margin for 2022 ($32 million) representing an increase over the implied 20.9 per cent margin ($21.4 million) from 2021.

The company’s EV/EBITDA multiples also appear solid, with Quenneville projecting a drop from 10.7x in 2021 to a forecasted 7.1x in 2022, presenting a discount in relation to the estimated peer group average of 10.2x.

In addition, Quenneville projects the company’s EPS to turn positive in 2023 at $0.03/share, while also introducing a 2023 P/E multiple of 203.5x, a piece off from the peer group average projection of 22.7x.

Quipt’s stock price has dropped off by 31.7 per cent over the last 12 months, as well as a 6.3 per cent loss since the start of 2022. Quipt’s stock price was at a 52-week high of $9.88/share on Feb. 16, 2021, and has started a climb back since dropping to a 52-week low of $6.38/share on January 28. At press time, Quenneville’s $11.25 target represented a projected one-year return of 60.7 per cent.