Dialogue Health is undervalued, says Desjardins

Better than expected quarterly results have Desjardins Capital Markets analyst Jerome Dubreuil talking up Dialogue Health Technologies (Dialogue Health Technologies Stock Quote, Charts, News, Analysts, Financials TSX:CARE). The analyst ticked up his target on CARE from $5.00 to $5.25 in a Thursday report to clients, saying first quarter results landed at the higher end of the company’s pre-released range.

Canadian virtual health and wellness platform Dialogue Health reported its Q1 2023 financials on May 9, coming in with revenue of $24.5 million compared to $19.5 million a year earlier and gross profit of $14.1 million compared to $8.0 million a year earlier. Adjusted EBITDA was a loss of $1.8 million. The company had pre-released Q1 financials on March 21, with the revenue and EBITDA midpoints of $24.3 million and negative $1.9 million, respectively.

“We started 2023 on a high note with year-over-year growth for annual recurring revenue and revenue of 36 per cent and 43 per cent respectively in our core digital business. We added more than 100,000 net new members to our platform in the first quarter and saw solid traction across our direct and partner channels, and across a broad spectrum of customers from small businesses to large enterprises,” said Cherif Habib, Chief Executive Officer of Dialogue, in a press release.

Looking at the Q1 numbers, Dubreuil said CARE’s gross margin continues to climb at an impressive pace, hitting 57.4 per cent for continuing operations, which was up from 41.0 per cent a year ago, although the analyst expects margins to drop slightly over the next quarter following on salary increases instituted in the first quarter.

“CARE reported results which were slightly better than expected. The company continues to deliver strong improvement in gross margin and is slightly ahead of its plan to achieve breakeven adjusted EBITDA later this year. Interestingly, management presented its adjusted EBITDA margin forecast for five years and beyond, which supports our view that the stock is undervalued,” Dubreuil said.

After the results, Dubreuil rejigged his estimates for Dialogue and is now calling for 2023 and 2024 revenue of $107 million and $132 million, respectively, and 2023 and 2024 adjusted EBITDA of negative $4.4 million and positive $5.9 million, respectively. The analyst is expecting CARE to hit positive adjusted EBITDA in the fourth quarter of the current year.

With the update, Dubreuil reiterated a “Buy” rating on the stock, while his new $5.25 target represented at press time a projected one-year return of 37.1 per cent.