Viemed Health is very undervalued: Beacon Securities

Beacon Securities analyst Doug Cooper continues to see value in Viemed Health (Viemed Health Stock Quote, Chart, News TSX:VMD), maintaining his “Buy” rating and C$12.25/share target price with a potential return of 123 per cent in an update to clients on March 8.

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 after the company released its fourth quarter financial results, which Cooper notes to be better than expected, along with its 2021 year-end figures.

“We note that this comes off an incredibly low base as the shares hit a two-year low yesterday and the stock still trades just 4.5x our FY22 EBITDA forecast, well below both its historical average as well as the historical average of its peer group,” said Cooper, who noted that the share price’s increase only got it back to where it had been trading four weeks prior.

Viemed’s financial forecast was headlined by core revenue of $29 million (all report figures are in US dollars, unless otherwise noted), with that figure growing to $32 million when accounting for revenue related to COVID-19. From the core perspective, the revenue figure represented 4.3 per cent sequential growth, along with an 11 per cent year-over-year increase. In its earnings conference call, company management noted that Q4 growth accelerated as COVID restrictions mitigated and referral sources opened up.

The company also continues to work to diversify its revenue, as ventilators only accounted for 75.6 per cent of Viemed’s revenue in the quarter, down from 80 per cent previously. Meanwhile, annualized revenue per active vent patient remained consistent at approximately $10,500 while other product revenue per patient increased to $3,400, up from $2,600 in Q1 to produce an eight per cent overall increase in the company’s total annualized revenue per patient.

Viemed’s EBITDA was reported at $9.5 million, though the Beacon Securities report of $8 million did not model the $1.5 million the company received through the CARES Act Fund. Regardless, the number is still a record for the company.

“We believe organic growth trends are emerging during the periods following COVID surges,” said Casey Hoyt, Viemed’s CEO in the company’s March 7 press release. “Following the Delta variant surge during the third quarter, our sales and clinical teams returned to the field in the fourth quarter eager to serve the strong demand in the market. As a result, we finished the quarter with record setting core revenues and active patient count. As we look forward to the upcoming year, we are excited to meet this demand with the innovative service offerings, which we invested in during the pandemic.”

With the company’s year-end revenue coming in at $117.1 million for 2021, Cooper projects modest growth for 2022, with the $126.3 million projection for 2022 representing a year-over-year increase of 7.9 per cent, while the newly-introduced revenue projection of $140.9 million would mark a potential year-over-year increase of 11.6 per cent.

“Such growth will continue to be organically driven as Viemed expands its sales force to include more geographic regions,” Cooper said.

From a valuation perspective, Cooper forecasts the company’s EV/Sales multiple to drop from 1.2x in 2021 to 1.1x in 2022, then to a projected 1x in 2023.

The company reported EBITDA of $26.9 million in 2021 for an implied margin of 23 per cent, and Cooper forecasts movement in the margin going forward, setting a projection of $31.1 million for an implied 24.6 per cent margin in 2022, with a further estimate of $36 million and an implied margin of 25.6 per cent in place for 2023.

In terms of valuation, Cooper projects the company’s EV/EBITDA multiple to drop from the reported 5.1x in 2021 to a projected 4.4x in 2022, then to a projected 3.8x in 2023.

Going forward, Cooper notes that the company also stands to benefit from Medicare CPI adjustments, set at five per cent for this year, while not being affected by any kind of inflation related to the ongoing war in Ukraine.

“Over the past several months, we have seen a remarkable valuation contraction across the sector such that VMD was trading at 3.5x prior to the release of its Q4 results,” Cooper said. “This is a sector that should experience strong organic growth, driven by an aging demographic and a benign regulatory environment, which should give investors visibility on margins.”

Viemed’s share price has been halved by way of a 51.1 per cent loss in the last 12 months, further punctuated by a 17.1 per cent loss since the start of 2022. The stock has been steadily dropping since hitting a 52-week closing high of C$13.05/share on April 6, dropping to a 52-week low of C$4.58/share on March 7.