DR stock wins price target raise at Leede

Following the company’s second quarter results, Leede Jones Gable analyst Douglas Loe has raised his price target on Medical Facilities Corp. (Medical Facilities Corp. Stock Quote, Chart, News, Analysts, Financials TSX:DR).

On August 6, DR reported its Q2, 2024 results. The company posted EBITDA of $23.8-million on revenue of US $107.2-million.

“In addition to favourable case and payor mixes, our facilities benefited from higher surgical case volumes, driving increases in income from operations and EBITDA during the quarter,” said CEO Jason Redmans. “We also continued to pay down corporate debt and repurchase shares under our NCIB. Subsequent to quarter end, the U.S. Small Business Administration finished its review pertaining to $6.9 of the $12.0 million in PPP loans outstanding as of June 30, 2024. Their review concluded with no findings, confirming full forgiveness of these particular loans. As such, we plan to record this $6.9 million amount as government stimulus income in the third quarter and reverse the corresponding liability previously recorded under government stimulus funds repayable. We will continue to seek forgiveness on the remaining PPP loans, diligently pursuing all reasonably available channels for reversing any remaining denials.”

In a research update to clients August 6, Loe maintained his “Buy” rating and raised his price target on DR from $15.00 to $15.50.

“SD-based physician-owned specialty hospital operator Medical Facilities reported FQ224 financial data for the June-end quarter,” he wrote. “As with most preceding quarters, EBITDA and distributable cash generated far exceeded actual dividend in the period, thus solidifying the firm’s status as a leading dividend-bearing (and as one of the sustainably lowest payout ratios) within our coverage universe. “We are maintaining our BUY rating based on dividend yield stability as driven by the firm’s physician-owned specialty hospital infrastructure in SD-OK-AR, while slightly revising our PT upward to C$15.50. Our financial forecasts and valuation methodologies are essentially unchanged, but revised capital structure (sequentially lower LT debt, reduced S/O on share buyback activity in the quarter) largely justifying our PT revision.

The analyst thinks DR will post EBITDA of (US) $89.3-million on revenue of $443.2-million in fiscal 2024. He expects those numbers will improve to EBITDA of $90.2-million on revenue of $447.4-million in fiscal 2025.

“We are maintaining our Buy rating on DR, with our PT slightly increased to C$15.50 from C$15.00 mostly on the basis of capital structure adjustments (lower S/O and debt levels) and not in any fundamental adjustments to our F2024-to-F2026 outlook and forecasts,” Loe added. “Including the 2.6% implied dividend yield, our revised PT corresponds to a one-year total return of 11.5%, close to the Buy-Hold threshold in our ratings hierarchy but with foundational dividend stability giving us confidence that positive returns can be realized for DR shareholders over a one-year time horizon. As before, our valuation is based on multiples of our F2025 adjusted EBITDA-EPS-AFFO forecasts of US$47.6M-US$1.03/shr-US$0.94/shr, respectively. In contrast, our unadjusted F2025 forecasts before giving effect to minority interests/physician ownership, are US$90.1M-US$1.37-US$1.77. As with prior years, we expect FQ324 revenue/EBITDA to be similar to FQ224 but with strength into FQ424 on case volume increases that we usually see in the year-end quarter.”