New target $2.80....M PartnersM Partners analyst Andrew Hood is upping his target for medical equipment company Protech Home Medical(Protech Home Medical Stock Quote, Chart, News TSXV:PTQ) after Protech’s latest acquisition, saying that the stock is now trading at a substantial discount to its peer group. In a research note to clients on Wednesday, Hood raised his target price from $2.40 to $2.80 while maintaining his “Buy” rating. Hood says that this is exactly the type of acquisition that is most beneficial to Protech since it increases exposure to key markets, expands its focus on the respiratory market and was made at an attractive purchase price.
The analyst expects PTQ to close at least one more acquisition in the short term, with the company likely looking to only finance acquisitions through cash on hand and operating cash flow (management saying that it has well over $20 million in potential revenue in its pipeline), a disciplined approach, says Hood.
Hood contends that PTQ can be bought cheap.
“Looking at Protech Home Medical’s small cap peers in health care products/service distribution, the discount on both an EV/EBITDA and EV/Revenue basis is striking. This is becoming increasingly unwarranted considering its high-margin cash-flow positive business model, and its financial and operational flexibility to acquire small businesses for rapid revenue growth. We also note that shares were trading above $1.00 prior to the cyber-theft in May. We believe that Protech should trade closer to the peer average of 12.6x on an EV/EBITDA multiple basis,” Hood says.
Hood says that an aging population and increasing prevalence of chronic illnesses in the US should support more than five per cent in annual growth in demand for durable medical equipment (DME) over the next ten-plus years. The analyst says that with Protech’s size, it stands as one of the few companies capable of acquiring smaller regional operators as the field of DME distributors consolidates going forward.
His increased target of $2.80 was prompted by the additional EBITDA coming from the CMI acquisition and represents a projected 12-month return of 226 per cent at the time of publication.