Still lots of room for Quipt Home Medical to run, says Beacon

Investors excited by the performance in recent months of home medical equipment company Quipt Home Medical Corp (Quipt Home Medical Stock Quote, Charts, News, Analysts, Financials TSXV:QIPT) should get ready for more fireworks, as Quipt is heading for a “transformational” second quarter, according to Beacon Securities analyst Doug Cooper, who reiterated a “Buy” rating on the stock in a Tuesday client update. Cooper said QIPT is still trading at a cheap valuation and he has a number of reasons why business will be sparkling this year for the company.

Cooper started off by noting Quipt’s record quarterly results, delivered last week, with revenue up 38 per cent year-over-year and EBITDA up over 50 per cent year-over-year and with margins expanding by 150 basis points from a year earlier and up 160 basis points from the previous quarter.

Yet, Cooper pointed out that QIPT’s Q1 did not include contribution from the company’s game-changing acquisition of Great Elm, which will add $60 million in revenue and $13 million in EBITDA on a post-synergy basis.

Based on the company’s post-Great Elm acquisition metrics, Cooper has QIPT trading at 1.3x EV/Sales and 6x EV/EBITDA.

“However, we believe the stock is actually trading at a much cheaper valuation than that on a forward basis as QIPT enters a sweet spot for growth and margin expansion,” Cooper wrote.

To back up his argument, Cooper said firstly that Quipt is currently operating in “a very conducive” regulatory environment, which will create a tailwind for the company; secondly, that Quipt’s supply chain issues have significantly lessened, with the analyst expecting the company to be back to pre-pandemic levels by the end of its fiscal second quarter (March end); thirdly, Quipt’s beefing up of its sales force over the past six months should result in material incremental revenue over the coming quarters; and fourthly, Cooper expects Quipt to sign an additional national insurance contract in the coming months, which both eases the onboarding of new patients and enables greenfield growth into new geographies.

“Most significantly, the company has guided to meeting or exceeding its historical 8-10 per cent organic growth rate. Assuming quarterly sequential growth of 2.5 per cent growing to 2.7 per cent over the balance of the calendar year, QIPT could see the following revenue ramp: Q2 (March 2023) $56.8 million; Q3 (June 2023) $58.2 million; Q3 (Sept 2023 $59.7 million); and Q1/fiscal 2024 (Dec 2023) $61.3 million, for a $245 million run-rate,” Cooper wrote. (All figures in US dollars except where noted otherwise.),” Cooper wrote.

With his “Buy” rating, Cooper maintained a one-year target price of C$18.50 per share, which at press time represented a projected return of 118 per cent.