Quipt Home Medical has more upside, says Leede Jones Gable

Shares of Quipt Home Medical (Quipt Home Medical Stock Quote, Charts, News, Analysts, Financials TSXV:QIPT) have been bouncing around all year, with the latest pullback coming after the durable medical equipment company delivered its latest quarterly results.

But investors should be seeing more upside than downside from the stock over the next 12 months, according to Leede Jones Gable analyst Douglas W. Loe, who reiterated a “Buy” rating and C$16.25 target in a Tuesday report to clients.

US-operating home respiratory care company Quipt Home Medical announced its fiscal second quarter 2023 on Tuesday for the period ended March 31, 2023, coming in with revenue up 73 per cent year-over-year to $58.1 million. The topline featured 2.5 per cent sequential organic growth, with management saying it’s likely to meet or surpass its eight to ten per cent annual organic growth rate in the calendar 2023 year. Adjusted EBITDA for the fiscal Q2 was $13.1 million compared to $7.0 million a year earlier. (All figures in US dollars except where noted otherwise.)

Quipt, which earlier this year completed the major acquisition of Great Elm Healthcare, said its customer base increased by 76 per cent year-over-year to 137,748, adding that there continues to be robust demand for its products.

“This past quarter has seen our supply chain return to normal, stronger organic growth, an increase in our Adjusted EBITDA margin and the seamless integration of our largest acquisition, Great Elm, to date,” said CEO and Chairman Greg Crawford in a press release. 

“We are extremely delighted that our team’s focus on operational excellence has produced such outstanding results and believe that our continued focus therein will yield increased margins as we move into the second half of 2023,” he said.

Looking at the quarterly results, Loe said with strong EBITDA and cash flow generation, there were no major surprises in the fiscal Q2. And although the Great Elm acquisition added a level of long-term debt, Quipt’s balance sheet remains attractive and existing operations are likely to comfortably handle the added debt. 

“Our model assumes that EBITDA and margin stability can be sustained throughout our forecast period and thus through F2023/24, though we are optimistic that the firm can continue to identify attractively-valued respiratory equipment distribution peers with available cash and its credit line, while preserving strong EBITDA margins in the process,” Loe wrote.

Loe is calling for QIPT to generate full fiscal 2023 revenue of $216.0 million and move to 2024 revenue of $237.8 million, while on EBITDA, the call is for $48.4 million in fiscal 2023 and $53.7 million in 2024. At press time, Loe’s C$16.25 price target represented a projected one-year return of 86.6 per cent.

“We are confident that capital markets will in time recognize the operating excellence that makes margin stability like this happen in an acquisition-laden background, and this prediction is a major element fuelling our positive regard for Quipt and its market value potential,” he said.