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Echelon lowers target on Skylight Health Group

Healthcare stock Skylight Health Group (Skylight Health Group Stock Quote, Charts, News, Analysts, Financials TSXV:SLHG) is way down over the past two years, but Echelon Capital Markets analyst Rob Goff still likes the name as well as the company’s progress in recent quarters. Goff reviewed Skylight’s recent third quarter in an update to clients on Friday where he reiterated a “Speculative Buy” rating on SLHG while lowering his target price from $2.00 to $1.50, good for a projected one-year return of 138.1 per cent.

Skylight Health, which has a primary care clinic network in the United States as well as a proprietary electronic health records system and telemedicine services, announced its Q3 results on Wednesday, coming in with revenue up 152 per cent year-over-year to $20.8 million and an adjusted EBITDA loss of $3.97 million compared to a loss of $4.3 million a year earlier.

“We increased our top line while reducing our costs and improving adjusted EBITDA,” said CEO Prad Sekar in a press release. “In Q1, we set an aggressive plan to work on operational efficiencies, right-size costs, and make material reductions on our annual cost basis. Exiting Q3, we forecast further improvement in adjusted EBITDA for Q4 as we remain committed to working towards adjusted EBITDA break-even by end of 2022.”

Looking at the results, Goff said the $20.8 million topline was a comfortable beat of his estimate at $17.7 million as well as the consensus call at $18.3 million, while adjusted EBITDA at negative $4.0 million was in-line with his forecast at negative $4.1 million and the Street’s negative $3.6 million.

Goff noted that the Q3 was Skylight’s first full quarter with input from value-based care acquisition NeighborMD and he pointed out Skylight’s progress in slashing about $1.3 million in operating expenses at the same time as generating a $4.8 million sequential boost in revenue. Gross margin for the quarter was light at 18.0 per cent, however, compared to Goff’s forecast at 21.5 per cent.

“While we are encouraged with Skylight’s progress this year and Q322’s results, we are taking a more conservative stance on the timing of the Company’s transition to EBITDA positive operations, while also factoring in a tougher small cap valuation environment as macro uncertainties prevail,” Goff wrote.

“These considerations move us to trim our price target from $2.00 to $1.50 per share. We will revisit our valuation and price target as the Company executes toward EBITDA profitability and its substantial organic growth targets,” he said.

Looking further ahead, Goff is projecting full 2022 revenue and adjusted EBITDA of $64.9 million and negative $19.7 million, respectively, and 2023 revenue and EBITDA of $87.2 million and negative $6.2 million, respectively.

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