Echelon Capital Top Pick Seeing “solid near- and long-term organic tailwinds,” Echelon Capital analyst Stefan Quenneville initiated coverage of Protech Home Medical Corp. with a “buy” rating and naming it to the firm’s “Top Pick Portfolio” for the first quarter of 2021.
“The U.S. durable medical equipment market is expected to grow by 6 per cent primarily due to the demographics of an ageing population,” he said. “The at-home care segment of the DME market further benefits by providing cost savings to payors (such as insurance companies and Medicare) and convenience to patients. Finally, the COVID-19 outbreak is a near-term driver of both an increasing need for ventilation equipment and a substantial accelerant of the shift to at-home care.”
Mr. Quenneville said the Cincinnati-based company has built a “significant” regional platform and sees “ample” opportunity for further consolidation.
“Over the past six years, the Company has grown to $100-million in revenue primarily via acquisitions,” he said. “There are over 6,000 DME suppliers in the US, with the vast majority being very small players. This provides PTQ with ample targets that fit its M&A playbook of businesses with $5-20M in sales and EBITDA margins of 10-20 per cent that it can purchase at attractive and accretive multiples (5-7 times trailing EBITDA). Management has a consistent track record of quickly driving synergies and improving margins to its 20-per-cent corporate level, resulting in post-integration prices closer to 2-4 times EBITDA. PTQ is able to pay attractive prices as it rarely competes with the much larger national players for deals of this size.”
Suggesting its larger and lucrative footprint has made it “a needle-moving target for any of the handful of national players that have revenues in the US$600-million-2-billion range,” he set a target of $2.30 per share. The average is $2.56.