Viemed Health has more upside to come, Beacon says

The stock has rallied strongly in recent weeks but Beacon Securities analyst Doug Cooper sees more upside to come from in-home medical equipment company Viemed Health (Viemed Health Stock Quote, Chart, News, Analysts, Financials TSX:VMD). Cooper maintained his “Buy” rating and C$12.50/share target price with a potential return of 84 per cent in an update to clients on May 4.

Louisiana-based Viemed provides home respiratory services to patients struggling with respiratory diseases including COPD, the third-biggest cause of death in the United States behind cancer and congestive heart failure, along with various neuromuscular diseases.

Cooper’s updated analysis comes after Viemed Healthcare released its first quarter financial results for the 2022 fiscal year, which Cooper noted to be the latest in a trend of strong quarterly results for the company.

Viemed’s Q1 was topped by $30.2 million in what the company called ‘core’ revenue for sequential growth of four per cent and a year-over-year increase of 18 per cent. When also accounting for COVID-related revenue, the company’s revenue jumped to $32.3 million for the quarter. (All report figures are in US dollars except where noted otherwise.)

Cooper also drew attention to the company’s continued revenue diversification efforts in his analysis, as the company reported a shift in its revenue mix where ventilators only accounted for 71.3 per cent of core revenue in the quarter compared to 80 per cent in the same quarter of 2021. Meanwhile, annualized revenue per active patient remained steady at approximately $10,225 while other product revenue per patient increased to $4,100, which drove total annualized revenue per patient to a new high of $14,328 for a three per cent sequential increase and 10 per cent year-over-year growth.

Looking ahead, Viemed management brought in core revenue guidance of between $32.1 million and $32.8 million for the upcoming quarter, which would represent 25 per cent year-over-year growth.

“If achieved, this would mark a return to its historical growth rate and its fastest growth since pre-pandemic,” Cooper said. “This makes sense given that referring clinics have essentially fully re-opened.”

The company reported its EBITDA for the quarter at $7.3 million, though Cooper’s modelling did not include other income, putting the Beacon Securities projection at $6.5 million for 22 per cent of core revenue, along with a 23 per cent year-over-year increase.

Overall, Viemed Healthcare ended the quarter with $29.4 million in cash available, even after completing a share buyback program in which the company bought 390,000 shares at a $1.9 million cost. Cooper noted the buyback was funded by its current cash balance because Viemed’s cash flow funds the company’s capital expenditure program.

“The record setting quarter in our core business is a reflection of the momentum we are beginning to see in a post pandemic environment,” said Casey Hoyt, CEO of Viemed Healthcare in the company’s May 3 press release. “Our investments in people, technology, and inventory during the pandemic have positioned us extremely well to actively engage with patients, providers, and payors as pandemic restrictions abate. We are invigorated by the increasing opportunities for face-to-face interaction with the people we serve in the coming months.”

Cooper has left his annual financial projections unchanged, with the $126.3 million projection for 2022 representing a year-over-year increase of 7.9 per cent, while his 2023 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,” said Cooper, who referenced management’s goal of entering 20 to 25 new territories in 2022 compared to just five in 2021.

From a valuation perspective, Cooper forecasts the company’s EV/Sales multiple to drop from the reported 1.5x in 2021 to a projected 1.4x in 2022, then to a projected 1.3x in 2023.

Cooper continues to forecast 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 6.6x in 2021 to a projected 5.7x in 2022, then to a projected 4.9x in 2023.

Cooper also believes investors will continue to see positive progress from Viemed, as he forecasts the company’s EPS to grow to $0.35/share in 2022, then to $0.45/share in 2023. Accordingly, Cooper forecasts the company’s P/E multiple to drop from the 2021 figure of 23.3x in 2021 to 14.9x in 2022, then to a projected 11.8x in 2023.

Viemed Healthcare’s share price has dipped by 6.3 per cent in 2022, and is in the process of recovering its value after dropping to a 2022 low of $4.58/share on March 7, briefly hitting a 2022 high of $7.18/share on May 4.