QIPT stock still has a huge upside, Beacon says

Following a record fourth quarter, Beacon Securities remains bullish on Quipt Home Medical (Quipt Home Medical Stock Quote, Chart, News, Analysts, Financials TSX:QIPT).

On December 18, QIPT reported its Q4 and fiscal 2023 results. In the fourth quarter, the company posted Adjusted EBITDA of $14.7-million on revenue of $62.5-million, a topline that was up 56 per cent over the same period a year earlier.

“We exited fiscal 2023 with strong momentum across the organization, and substantial operating scale achieved, posting record results with revenue increasing by $81.8 million to $221.7 million,” CEO Greg Crawford said. “We saw an acceleration of our fiscal 2023 Adjusted EBITDA as a percentage of revenue increase to 22.8%, compared to 20.9% in fiscal 2022, reduced our bad debt expense significantly and improved net operating cash flow. Our growth strategy continues to yield consistent financial and operational results, and we are pleased with the team’s continuous efforts to expand our patient-centric ecosystem into strategic areas around the country. To achieve our goals for organic growth, we have been concentrating our efforts on areas where COPD prevalence is high and extending our sales efforts into continuum markets. In fiscal 2024, we anticipate solid organic growth, with the goal of achieving 8-10% revenue growth on an annualized basis. In real time during fiscal Q1 2024, we have seen continued strong demand for our entire diversified respiratory product mix including sleep products and expect this to continue through fiscal 2024.”

Beacon analyst Doug Cooper says what’s driving QIPT is that the company has quietly reached a critical mass.

“While it may seem like QIPT’s core business is the rental of CPAP equipment to treat patients with obstructive sleep apnea (OSA), we believe the most important and profitable part of the business is actually selling replacement components (ie masks, hoses, etc),” the analyst wrote. “However, before a company can benefit from that business, it needs to build the infrastructure to obtain the patients and provide the scale necessary to enable the operating leverage. This includes branches around the country, a sales team focused on prescribing physicians and clinicians to ensure the patients are properly set-up on the equipment and are compliant. This takes both time and capital. QIPT has now successfully reached that level. It operates 125 locations in 26 states and has relationships with 34.400 referring physicians and has therefore achieved that level of scale that should enable a growing free cash flow stream.”

In a research update to clients December 19, Cooper maintained his “Buy” rating and one-year price target of $18.50 on QIPT, implying a return of 201 per cent at the time of publication.

Cooper thinks QIPT will post EBITDA of $61.1-million on revenue of $263.3-million in fiscal 2024. He expects those numbers will improve to EBITDA of $68.1-million on a topline of $289.6-million the following year.

“We believe the market is under-estimating AND under-valuing this high margin, recurring revenue stream. As QIPT continues to grow its patient base, the re-supply business will continue to grow and have a positive impact on EBITDA margins and free cash flow. The question is what is the value of that patient? Given the free cash flow from the resupply business, that segment should be valued at 12x or more while the lower margin leasing EBITDA contribution perhaps at 4x. Using that math, you arrive at a per share value of $13.50 or C$18.50,” the analyst concluded.