Leede Financial Inc. analyst Dr. Douglas W. Loe, in a research report published on August 13, 2024, provided an update on Extendicare Inc. (EXE:TSX) following the company's second quarter 2024 financial results. The analyst maintained a Buy rating and raised the price target to CA$10.00 from CA$8.50.
Extendicare reported solid Q2 2024 results, with improvements across all profitability metrics. Loe noted, "Consolidated FQ224 revenue/EBITDA/margin were CA$348.5M/CA$38.6M/11.1%, as compared sequentially to FQ124 data of CA$353.5M/CA$30.1M/8.5% and y/y to FQ223 data of CA$307.5M/CA$14.8M/4.8%."
The analyst highlighted the strength in both long-term care (LTC) and home healthcare operations. "Even without considering some out-of-period funding that lifted LTC profitability in the quarter, core operating income/margin were strong by recent standards," Loe stated. For home healthcare, he noted, "In FQ224, home healthcare revenue/operating income/margin were CA$136.3M/$17.1M/12.6% as compared to CA$130.0M/CA$10.8M/8.3% in FQ124 and to CA$116.3M/CA$10.1M/8.6% in FQ223."
Extendicare's strategic focus includes investments in back-office technological support, a shift to managed services through its joint venture with Axium, capitalizing on increased demand for LTC services due to demographic shifts, and benefiting from increased LTC funding, particularly in Ontario.
Loe concluded, "We expect EXE to trade on its fundamental economic metrics in coming quarters, unencumbered by extraordinary events, though re-emergence of such events is clearly somewhere between plausible and probably in future periods."
Loe highlighted several operational achievements, including stable occupancy rates and ongoing growth capital expenditure projects. "Overall LTC occupancy in the quarter was 97.8% and thus at the top end of recent quarterly occupancy statistics," he noted.
Regarding valuation, Leede Financial Inc.'s methodology is based on a combination of AFFO and EV/EBITDA multiples.
"We are maintaining our Buy rating on EXE while increasing our PT on the stock from CA$8.50 to CA$10.00 while continuing to base our valuation on the average of 10x AFFO and 10x EV/EBITDA, using our F2025 AFFO/EBITDA forecasts of CA$0.90/shr & CA$110.8M in that calculation," Loe explained.
With a Buy rating and a price target of CA$10.00, representing a potential total one-year return of 37.5% (including a 6.3% dividend yield) from the price at the time of the report of CA$7.62, Leede Jones Gable sees significant upside potential for Extendicare.
Loe concluded, "We expect EXE to trade on its fundamental economic metrics in coming quarters, unencumbered by extraordinary events, though re-emergence of such events is clearly somewhere between plausible and probably in future periods."
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Disclosures for Leede Financial Inc., Extendicare Inc., August 13, 2024
Important Information and Legal Disclaimers Leede Financial Inc. (Leede) is a member of the Canadian Investment Regulatory Organization (CIRO) and a member of the Canadian Investor Protection Fund (CIPF). This document is not an offer to buy or sell or a solicitation of an offer to buy or sell any security or instrument or to participate in any particular investing strategy. Data from various sources were used in the preparation of these documents; the information is believed but in no way warranted to be reliable, accurate and appropriate. All information is as of the date of publication and is subject to change without notice. Any opinions or recommendations expressed herein do not necessarily reflect those of Leede. Leede cannot accept any trading instructions via e-mail as the timely receipt of e-mail messages, or their integrity over the Internet, cannot be guaranteed. Dividend yields change as stock prices change, and companies may change or cancel dividend payments in the future. All securities involve varying amounts of risk, and their values will fluctuate, and the fluctuation of foreign currency exchange rates will also impact your investment returns if measured in Canadian Dollars. Past performance does not guarantee future returns, investments may increase or decrease in value, and you may lose money. Leede employees may buy and sell shares of the companies that are recommended for their own accounts and for the accounts of other clients. Disclosure codes are used in accordance with Policy 3600 of CIRO.
Dissemination All final research reports are disseminated to existing and potential institutional clients of Leede Financial Inc. (Leede) in electronic form to intended recipients thorough e-mail and third-party aggregators. Research reports are posted to the Leede website and are accessible to customers who are entitled to the firm’s research. Reproduction of this report in whole or in part without permission is prohibited. Research Analyst Certification The Research Analyst(s) who prepare this report certify that their respective report accurately reflects his/her personal opinion and that no part of his/her compensation was, is, or will be directly or indirectly related to the specific recommendations or views as to the securities or companies. Leede Financial Inc. (Leede) compensates its research analysts from a variety of sources and research analysts may or may not receive compensation based upon Leede investment banking revenue.
Canadian Disclosures This research has been approved by Leede Financial Inc. (Leede), which accepts sole responsibility for this research and its dissemination in Canada. Leede is registered and regulated by the Canadian Investment Regulatory Organization (CIRO) and is a member of the Canadian Investor Protection Fund (CIPF). Canadian clients wishing to effect transactions in any designated investment discussed should do so through a Leede Registered Representative. U.S. Disclosures This research report was prepared by Leede Financial Inc. (Leede). Leede is registered and regulated by the Canadian Investment Regulatory Organization (CIRO) and is a member of the Canadian Investor Protection Fund (CIPF). This report does not constitute an offer to sell or the solicitation of an offer to buy any of the securities discussed herein. Leede is not registered as a broker-dealer in the United States and is not subject to U.S. rules regarding the preparation of research reports and the independence of research analysts. Any resulting transactions should be effected through a U.S. broker-dealer.
