Quipt Home Medical is an attractive takeout target, says Echelon

With its share price zooming up the charts, Echelon Capital Markets analyst Stefan Quenneville is keeping the beat going on Quipt Home Medical (Quipt Home Medical Stock Quote, Charts, News, Analysts, Financials TSXV:QIPT). Quenneville delivered an update to clients on Tuesday where he reiterated Quipt as an Echelon Top Pick, saying he’s staying bullish on both the home care-focused durable medical equipment (DME) industry as well as Quipt’s positioning after its acquisition of Great Elm Healthcare, a respiratory DME service provider in the US, closed earlier this year.

“With this acquisition, Quipt has achieved a regional scale and has developed insurance relationships that will improve margins in the near term and catalyze the growth of its commercial network in the medium to long term,” Quenneville wrote.

“Meanwhile, [Quipt] remains in the M&A sweet spot as an attractive target for one of the handful of larger national players, while the fragmented DME market provides ample opportunity for accretive acquisitions,” he said.

Quipt, which in 2021 consolidated its shares on a one-for-four basis and changed its name from Protech Home Medical to Quipt Home Medical, has been on quite a run of late. The stock was down around C$5.50 per share in mid-October of last year but has been climbing sharply since, hitting C$9.00 in mid-March and then rising above C$9.50 this week.

And there should be more upside to come, according to Quenneville, who maintained a “Buy” rating on the stock and C$11.75 target price, reflecting at press time a projected one-year return of 24 per cent.

Quenneville said there are solid, long-term organic tailwinds in the US home care and DME markets, which are expected to grow at CAGRs of seven and six per cent, respectively, through 2028, and he added that Quipt, a provider of home monitoring and chronic disease management services with operations currently in 26 US states and 115 locations, is well-positioned at the intersection of the two markets.

“The outlook for organic growth in 2023 remains upbeat, with the expectation that Quipt will meet and surpass historical levels of eight to ten per cent as the year progresses. This will be driven in part by the about eight per cent blended CPI increase that took effect in January 2023 and will benefit the ~34 per cent of the business that is reimbursed by Medicare,” Quenneville wrote. 

“In addition, the Company has seen rapid and material improvements in the industry-wide sleep device supply chain issues that hampered growth and margins in 2022. CPAP device supply is expected to return to pre-pandemic levels in the first half of 2023, which is expected to buoy margins,” he said.

For Quipt’s full fiscal 2023 (year end Sept 30), Quenneville is forecasting revenue at $221.2 million compared to $139.9 million achieved in fiscal 2022 and adjusted EBITDA at $48.8 million compared to $29.2 million a year earlier. (All figures in US dollars except where noted otherwise.)