Laurentian Bank Securities analyst Nick Agostino delivered an update to clients on Wednesday on Vancouver-based health tech company CloudMD Software & Services (CloudMD Software & Services Stock Quote, Charts, News, Analysts, Financials TSXV:DOC).
Ahead of fourth quarter earnings due next week, Agostino reiterated a “Speculative Buy” rating and $0.75 per share target price on the stock, representing at press time a projected one-year return of 275 per cent.
Agostino is modelling Q4 revenues to arrive in-line with consensus and EBITDA to be below the Street’s forecast, calling for an adjusted EBITDA loss of $2.8 million on a topline of $27.5 million.
The analyst said CloudMD will see organic growth fall by 19 per cent year-over-year, with lower revenue from VisionPros as a main issue. CloudMD’s Enterprise Health Solution (EHS) segment is expected to deliver $21.8 million in revenue, up about 17 per cent year-over-year, while Digital Health Solutions (DHS) are expected at $5.7 million compared to $10.2 million a year ago, with lower volumes from VisionPros factoring in.
On the Q4 earnings, Agostino wrote, “We model gross margin of 34.5 per cent, flat QoQ, but up from 30.0 per cent year-over-year as DOC exits lower margin businesses. We look for Adj. EBITDA of -$2.8 million, a $0.5 million quarter-on-quarter improvement as DOC realizes the full benefits from its announced Q3 cost reductions of $4 million annually, with a further $6 million identified and to be implemented in 1H/23. We estimate opex as a percentage of sales at 45 per cent versus 47 per cent quarter-on-quarter and 28 per cent year-over-year. We continue to expect positive EBITDA by Q4/23.”
On a comparative basis, Agostino estimates DOC to be currently trading at 0.5x next 12 months’ EV/Sales versus its Medical Technology peers at 2.0x, excluding outliers, and that’s despite a comparable pro-forma growth and margin profile, according to the analyst.
With the upcoming fourth quarter report from CloudMD, Agostino said he will be looking for elaboration from management on a number of items, including: colour on its partnership expansion with Benefits Alliance, the status of sales cycles on larger deals, colour on DOC’s new multi-year contract with its first hospital customer and vendor agreement with Mohawk Medbury Corp, update on the the launch of online prescription renewals through VisionPros in the US, contract prospects in the high-margin Enterprise market and any upcoming M&A activity and pipeline related to target areas.
Further ahead, Agostino is forecasting CloudMD to deliver 2023 sales and EBITDA of $122.3 million and negative $2.6 million, respectively.