Raymond James analyst Rahul Sarugaser thinks Quipt Home Medical Corp. currently possesses “a material near-term upside risk-reward profile for investors.”
Following Tuesday’s post-market announcement of the US$80-million acquisition of Great Elm Healthcare LLC, he thinks the Cincinnati-based company will “begin seeing a right sizing of its asymmetrically undervalued 5 times 2023 EV/EBITDA multiple upward toward its peer set’s average of 12 times.”
“We appreciate QIPT management’s capacity to execute a transaction of this size at such attractive multiples (an immediate lift from 6 times to 12 times EBITDA) on such an aggressive schedule: QIPT signed this deal on the last day of CY22, thus meeting and handily beating its guidance of $180-190-million revenue run-rate by CYE22, which we, reasonably, thought the company might miss,” said Mr. Sarugaser. “QIPT’s rapid, profitable growth within a fast-growing, recession-protected industry—supported by an extremely favorable regulatory environment (recent CPI increases to Medicare fee schedule for DME; simpler patient access to DME via CMS programs) — make the company one of most attractive names: defensive, cash-flowing, and poised for material growth. A rare combination.”
Maintaining an “outperform” rating, he raised his target to US$14 from US$10, exceeding the US$9.17 average.
“We update our models in which we conservatively assume a 3-per-cent organic growth rate, and no additional M&A through 2023 as QIPT’s management team—whom we’ve come to appreciate as very strong operators (yet another reason for right-sizing of QIPT’s valuation multiple)—ensures the acquisition of Great Elm is neatly and fully integrated,” he concluded.
Elsewhere, others making target changes include:
* Echelon Capital Markets’ Stefan Quenneville to $11.75 from $11.25 with a “buy” recommendation.
“This deal meaningfully accelerates Quipt’s ambition of becoming a national player, increases its scale and insurance company relationships, and provides additional regional platforms for future tuck-in M&A as it consolidates the fragmented DME industry,” he said. “With supply chain issues improving, robust demand for respiratory equipment, and an attractive valuation relative to peers, we continue to view QIPT as a compelling opportunity for investors. As such, we reiterate our Top Pick rating.”
* Leede Jones Gable’s Douglas Loe to $16.25 from $15 with a “buy” rating.
“We continue to be impressed by Quipt’s ability to scale operations without sacrificing EBITDA margin or operating cash flow generation, even with inflationary cost escalation and labor constraints producing operational headwinds across most healthcare services firms, and we expect that trend to continue,” said Mr. Loe. “Key macro factors that should facilitate margin stability include the scheduled increase in CPI-based Medicare funding increases of 6.4 per cent to 9.1 per cent next year, and the elimination of the requirement for respiratory patients to receive physician-endorsed certificates of medical necessity before actively seeking out home-based respiratory care, a long overdue initiative that should enhance Quipt’s annual patients served.”
On Tuesday, Quipt was named one of iA Capital Markets’ top stock picks for 2023.