Quipt Home Medical still a Buy, says Leede Jones Gable

Despite the stock’s losses over the past year, Douglas Loe of Leede Jones Gable remains positive on Quipt Home Medical Corp. (Quipt Home Medical Stock Quote, Charts, News, Analysts, Financials TSXV:QIPT), maintaining a “Buy” rating and C$15/share target price for a potential return of 134 per cent in an update to clients on Tuesday.

Founded in 1993 and headquartered in Kentucky, Quipt Home Medical is a durable medical equipment firm focused on delivering respiratory care devices into home healthcare markets, presently providing service to approximately 170,000 patients in 19 states across the United States.

Loe’s latest analysis comes after Quipt announced it had acquired California operation NorCal Respiratory, with Loe pointing to the company’s growth by acquisition strategy as being a key reason for the target maintain.

“We continue to be impressed by the pace at which Quipt has identified bolt-on respiratory medical equipment distributors in recent quarters, invariably while holding firm on revenue/EBITDA multiples, as well as holding firm on its EBITDA margin trajectory (and without the need to exclude transaction/transition costs to do it),” Loe said. “The transaction uses available cash derived from free cash flow to fund the transactions, leaving its capital structure (and specifically its debt levels) essentially unaltered. The trend continues with this transaction.”

The transaction comes in at a value of $3.1 million (all figures in this analysis are in US dollars, unless otherwise specified), and the all-cash transaction corresponds to a 1.0x T12M revenue multiple and 4.8x T12M EBITDA multiple, respectively, with Loe considering the multiples to be favourable both in absolute terms and relative to other acquisitions that Quipt has consummated in recent quarters; in the 2021 fiscal year, NorCal finished with $3.2 million in revenue and $0.7 million in EBITDA.

As part of the deal, Quipt will bring in NorCal’s three physical locations to give the company a total of 90 while supplementing Quipt’s other recent acquisition, Good Night Medical. In addition, the deal is expected to bring 600 physicians and 3,600 patients into the Quipt network, thus increasing Quipt’s cumulative national referring network base to 19,600 and separately raising Quipt’s national active patient count to 184,000 patients.

Of additional note to Loe was the fact that 98 per cent of NorCal’s product mix has a respiratory focus, while existing operations are aligned closely with regions in which there is a high prevalence of COPD, a medical market which is complementary to Quipt’s respiratory equipment offerings.

“We are extremely excited to close the acquisition of NorCal Respiratory, providing us a further expansionary opportunity in California to grow our market share. California is an attractive market that we have been looking to further expand in with over 1.3 million COPD sufferers across the state, and we are thrilled to be able to do so on the heels of this acquisition,” said Greg Crawford, Chairman and CEO of Quipt in the company’s June 7 press release.

“Our ventilation program is an immediate cross selling opportunity for us, and we anticipate that our automated resupply program will provide an actionable revenue synergy for us. The 98% respiratory product mix and coverage sphere of NorCal make it a very strong acquisition for us, and we are laser-focused on efficiently integrating the business to drive cost synergies and further revenue growth opportunities that drive consistent financial results and margin stability,” Crawford said.

Loe forecasts sizeable growth in the company’s financial forecasts, as he projects revenue of $146.1 million in 2022 for a potential year-over-year increase of 42.8 per cent. Looking ahead to 2023, Loe forecasts a more modest jump to a projected $176.3 million, good for a potential year-over-year increase of 20.6 per cent.

Meanwhile, on the margins, Loe projects the company to produce $29.7 million in EBITDA in 2022 for year-over-year growth of 38.5 per cent and a margin of 20.3 per cent. For 2023, Loe forecasts a 23.4 per cent jump to $36.6 million, representing a slightly wider margin of 20.8 per cent.

From a valuation perspective, Loe forecasts the company’s EV/EBITDA multiple to dip from the reported 8.1x in 2021 to a projected 5.8x in 2022, then to a projected 4.7x in 2023.

For investors, Loe projects a positive EPS of $0.17/share in 2022 and growing to a projected $0.56/share in 2023, with Loe introducing a P/E multiple projection of 30.9x in 2022 before dropping to a projected 9.5x in 2023.

“Our key takeaway is that the transaction will allow for Quipt to tap on additional revenue synergies, with cross-selling opportunities that could deploy Quipt’s existing ventilation therapy program,” Loe said.

After dropping to C$5.32/share on March 7, Quipt’s share price has crept up by 25 per cent, though it has still resulted in a 7.6 per cent loss since the start of 2022 after an early peak of C$7.46/share on January 7.