Quipt Home Medical has a 139 per cent upside, says Beacon

The stock has dropped sharply over the past couple of weeks, but investors should get ready for a rebound from Quipt Home Medical (Quipt Home Medical Stock Quote, Charts, News, Analysts, Financials TSXV:QIPT), according to Beacon Securities analyst Doug Cooper, who delivered an update on Wednesday where he reiterated a “Buy” rating. Cooper says Quipt’s upcoming quarterly results will be a catalyst for the stock.

In-home monitoring and disease management services company Quipt Home Medical saw its share price rise nicely from December to early April, gaining over 60 per cent in value over that stretch. But the stock dropped back around mid-month after the company announced a new equity financing round. 

That financing closed on Tuesday, bringing the company about $31.5 million through the issuing of about 5.4 million shares at C$7.85 per share. Quipt said it will use the money to de-lever its balance sheet, which was impacted by the $80 million acquisition earlier this year of Great Elm. (All figures in US dollars except where noted otherwise.)

Cooper said Quipt had drawn $73 million on its $110 million credit facility for the deal and will now pay down $40 million of it, which will bring its leverage ration down to about 0.8x.

The move will help set Quipt up for more M&A, Cooper said.

“We suspect that given the increase in Quipt’s shareholders’ equity position, its lending syndicate would feel comfortable increasing Quipt’s credit facility to something north of the current $110 million,” Cooper wrote. “As such, we believe that Quipt has at least $75 million of dry powder and perhaps more with which to make additional acquisitions.”

Cooper said Quipt will report in the coming weeks its fiscal Q2 2023 report (for the period ended March 31), which will be the first to feature Great Elm’s input. The analyst said assuming a two per cent sequential rise in Quipt’s base business and adding on a $15 million contribution from Great Elm, Quipt’s revenue would be at $56 million, representing a year-over-year revenue boost of 92 per cent. That would mean Quipt would have quadrupled the size of its business in the last ten quarters, Cooper said.

“Investors do not have to wait long for the next catalyst as the company will report its Q2/FY23 in the coming weeks. These will be truly transformational and show investors the growth that the company has experienced over the past few years,” he said.

Further out, Cooper is estimating full fiscal 2023 revenue and EBITDA of $216.8 million and $47.7 million, respectively, followed by fiscal 2024 revenue and EBITDA of $240.5 million and $52.9 million, respectively.

Cooper estimated that QIPT currently trades at about 5x his fiscal 2024 forecast, which is a significant discount to its peer group as well as to the historical range of that group. With his “Buy” rating, Cooper maintained a C$18.50 target price, which implied at press time a return of 139 per cent.