QIPT stock is a buy, says Leede Jones Gable

Following the company’s most recent acquisition, Leede Jones Gable analyst Douglas Loe remains bullish on Quipt Home Medical (Quipt Home Medical Stock Quote, Chart, News, Analysts, Financials TSXV:QIPT)

On September 11, QIPT announced the acquisition of an unnamed business with revenue of approximately $9-million and EBITDA of $2-million.

“The completion of this transaction demonstrates our ongoing patience and discipline as it relates to our capital allocation approach. At favourable terms, we were able to significantly expand in three attractive existing states,” said CEO Greg Crawford. “Given that there are more than 1.5 million COPD patients residing in Mississippi, Texas and Louisiana, we increase our footprint in those three states. Our team of operators will once again utilize our tried-and-true integration approach to efficiently integrate this business onto our existing platform, continuing to build scale across the organization. Moreover, we believe there is an opportunity to leverage our resupply program immediately, creating actionable revenue synergies for us. Additionally, the substantial patient base and excellent referral network we have built up in these three states allow us to take a land-and-expand approach to future growth, which will support our organic growth goals.”

Loe dissected the deal.

“For now, we will assume that Quipt’s new acquisition will sustain T12M revenue/EBITDA performance within a Quipt framework,” the analyst argued. “Quipt has a long track record during our coverage history of the firm of being able to sustain EBITDA margins of new acquisitions at/near levels that the acquired firm sustained on its own, and without incurring any transient dips in its own consolidated EBITDA in the process. Accordingly, we are comfortable with adding new revenue/EBITDA to our F2024/25 revenue/EBITDA forecasts without assuming any supplemental costs post acquisition. On the flip side, we will separately assume that operating synergies will be minimal to-modest, at least until we see clear evidence that cost synergies or client growth in particular are achievable (which they may be, given that Quipt already had operations in all three geographies). Quipt has sufficient balance sheet strength to consummate the TX-LA-MS acquisition without necessarily revising its capital structure in any way, as it exited FQ323 with US$20.4M in cash and US$65.3M in total debt, even before considering that the firm’s FQ423 operating cash flow based on historic performance should be in the US$11M-to-US$13M range.

In a research update to clients September 11, Loe maintained his “Buy” rating and one-year price target of $16.25 on QIPT, implying a return of 116.1 per cent at the time of publication.

Loe thinks QIPT will generate EBITDA of (US) $49.5-million on revenue of $219.8-million in fiscal 2023. He expects those numbers will improve to EBITDA of $56.1-million on a topline of $264.8-million the following year.