Quipt Home Medical is looking very attractive, Beacon says

An incredible risk-return proposition — that’s how Beacon Securities analyst Doug Cooper describes Quipt Home Medical (Quipt Home Medical Stock Quote, Charts, News, Analysts, Financials TSXV:QIPT). Cooper delivered a report to clients on Wednesday where he revised his numbers on Quipt while reiterating a “Buy” rating and C$16.00 target price. 

Cooper’s update was prompted by US health authority the Centers for Medicare & Medicaid Services, which recently release Medicare’s revised fee schedule for durable medical equipment providers for 2023, with a positive adjustment between 6.4 and 9.1 per cent. Cooper said the impact on Quipt, which delivers respiratory care medical equipment for in-home monitoring and disease management, is expected to be about an eight per cent increase.

Cooper said about 38 per cent of Quipt’s revenue is either tied to Medicare or represents commercial contracts linked to Medicare pricing, and by his math, the impact on QIPT’s 2023 numbers is an added $4.9 million in revenue. That puts his forecast for the year, prior to any organic revenue growth or M&A, at $165 million. Cooper said this would leave the company needing only to grow its revenue by four per cent organically to hit his full 2023 forecast of $171.8 million, whereas the company, aside from inorganic growth, has a historical organic growth rate of over eight per cent. (All figures in US dollars except where noted otherwise.)

“The bottom line is that CMS’ roughly eight per cent upward price adjustment is very positive for both QIPT’s 2023 revenue and EBITDA. While we are not making any changes to our current model, we believe our forecast has a very high degree of visibility and, in fact, there is material upside based on higher than four per cent organic growth as well as M&A,” Cooper wrote.

The full numbers have Cooper calling for 2022 revenue and EBITDA of $140.8 million and $29.2 million, respectively, and for 2023 revenue and EBITDA of $171.8 million and $37.8 million, respectively.

At press time, Cooper’s maintained C$16.00 target represented a projected one-year return of 167 per cent.

“In our opinion, stocks that have such a high degree of visibility with a strong balance sheet and who participates in an industry that should be recession resilient, should not trade at 1x sales and 4x EBITDA,” he wrote.

“Historically, the group has traded 8-12x EBITDA and, in fact, many DME participants still do. QIPT should be no different,” Cooper said. “In our view, this sets up an incredible risk-return proposition.”