Quipt Home Medical is a Q3 Top Pick, says Echelon

Solid tailwinds in the US home care and durable medical equipment (DME) markets should be a long-term boon Quipt Home Medical (Quipt Home Medical Stock Quote, Charts, News, Analysts, Financials TSX:QIPT), according to Echelon Capital Markets analyst Stefan Quenneville, who reiterated a “Buy” rating on the stock in a Thursday report.

Quenneville said QIPT remains a Top Pick for Echelon for the third quarter and argued that the company has a strong track record of accretive M&A in a still-fragmented US market for DME suppliers.

Headquartered in Kentucky, Quipt provides in-home monitoring and chronic disease management services including end-to-end respiratory solutions. The company currently operates in 26 states in 115 locations and oversees about 690,000 unique deliveries and equipment setups annually to over 270,000 unique patients. 

Quipt shares were up and down over the first half of the year, rising by about 50 per cent over the first quarter and then losing practically all of those gains in the Q2. 

Quenneville sees upside from here and is maintaining a 12-month target of C$11.75 per share, good for a projected return at the time of publication of 65 per cent.

The analyst said the US home care and DME markets are expected to grow at CAGRs of seven and six per cent, respectively, through 2028, primarily due to demographics of an aging population. 

“Quipt is well-positioned at the intersection of these two markets, both of which provide cost savings to payors (e.g., insurance companies, Medicare) and convenience to patients,” Quenneville wrote.

As to the players in the DME market, Quenneville said the vast majority of the over 6,000 DME suppliers in the US are very small players, thus making for ample targets for Quipt’s M&A strategy. Quenneville said with its smaller size, Quipt is able to pay attractive prices for these tuck-ins as it rarely has to compete with the much larger national players.

At the same time, Quipt made a splash earlier this year with the acquisition of Great Elm Healthcare for $80 million, a move which gave it regional scale and helped it develop insurance relationships that’ll help drive margins and grow its commercial network over the medium to long term.

“We reiterate our Top Pick rating and target price of C$11.75, which is based on an 8.3x EV/EBITDA multiple applied to our C2023 Adj. EBITDA estimate. We view QIPT as a compelling opportunity for investors as it currently trades at 6.2x versus its broader North American peer group currently at a median valuation of 10.8x,” Quenneville wrote.

Quenneville has forecasted Quipt’s revenue to go from $139.9 million in fiscal 2022 (year end September) to $222.2 million for fiscal 2023, while adjusted EBITDA is projected to go from $29.2 million in fiscal 2022 to $52.8 million in fiscal 2023. (All figures in US dollars except where noted otherwise.)