March 5, 2021
VieMed Healthcare, Inc.
Breathing impressive organic growth into your portfolio; initiating at Outperform
Our view: VMD is well positioned to deliver above-market topline and earnings growth for the foreseeable future, entirely through organic means in a large and underpenetrated market. We believe that over time, as the company's low-risk, capital-light strategy delivers multiple years of strong growth and as its clinical value proposition is better appreciated by payors, the stock should migrate to a higher valuation, rewarding shareholders. We rate the stock Outperform with a price target of $13.
Key points:
VMD offers investors exposure to the increasingly important, fast- growing in-home care delivery space
• A growing proportion of healthcare is migrating from more traditional
facility-based settings into patients’ homes. This migration is driven primarily by patient preference, cost advantages, and technological advances that help clinicians deliver increasing clinical quality and safety in the home. Through its unique, clinically-driven service model and a large and growing multi-state footprint, we believe VMD is well positioned to help patients with some of the most costly chronic illnesses manage these conditions from the comfort of their homes.
Proven clinical benefits and financial savings, but a vast untapped market potential
• VMD’s primary focus is in addressing the needs of patients with
respiratory diseases, in particular Stage 4 COPD, a population that numbers an estimated 2.5MM across the U.S. Noninvasive ventilation has been proven to deliver significant clinical and financial benefits to patients, payors, and providers including reductions in deaths and costly readmissions. However, the estimated percentage of eligible patients who are receiving this therapy is under 5%, providing a massively underpenetrated potential market for VMD’s services. Additionally, the reimbursement outlook for NIV therapy appears benign for the foreseeable future, in our opinion, with any significant changes under competitive bidding off the table until 2023, at the earliest.
Organic growth significantly outpacing the market
• VMD’s low-risk, capital-light growth strategy is focused primarily on the expansive organic opportunities presented by the underpenetrated market. Its clinical salesforce of respiratory therapists enter new markets, establish relationships with referral sources in hospitals and physician practices, and can quickly begin serving patients from vehicle- based operations. With its proven ability to deliver quality outcomes and cost savings, VMD can also gain market share. All in, management targets organic topline growth of 30% or more annually.
$13 price target based on blend of DCF and peer group average
• Our DCF analysis yields slightly over $13/shr, and our 3.7x FY22E EV/ Revenue multiple is a 1x premium to the broad peer group average FY22E valuation, also yielding slightly over $13. Taking a blend of these two methods drives our $13 PT.