Quipt Home Medical Corp. (QIPT:NASDAQ; QIPT:TSX.V) posted revenue and EBITDA for the fourth quarter of fiscal year 2024 (Q4 FY24) that were down quarter over quarter (QOQ) and year over year (YOY) but "still strong by industry standards and Quipt's own recent history," reported Dr. Douglas Loe, Managing Director & Analyst, Leede Financial Inc., in a Dec. 18 research note.
"Multiple risk elements conspire to compress the valuation multiples currently ascribed to QIPT, despite its sustained operating excellence in a niche durable medical equipment distribution sector," Loe wrote.
360% Return Implied
Quipt, a home medical equipment and supplies distributor based in Kansas, U.S., was trading at the time of the report at about US$2.61 per share, at a heavy discount, Loe purported, to its medical equipment peers, including VieMed Healthcare Inc. (VMD:NASDAQ), Adapthealth Corp. (AHCO:NASDAQ) and Linde Plc (LIN:NASDAQ). Leede remains bullish overall on Quipt's core operating and profitability metrics.
Accordingly, the investment dealer has a target price of US$12 per share on the company, which suggests a 361% uplift from the current share price.
Quipt remains a Buy.
Summary of Quarter's Results
Loe reviewed Quipt's financial results for Q4 FY24. The company's shift to U.S. generally accepted accounting principles, he noted, hindered comparisons to trailing EBITDA and cash flow data.
Adjusted EBITDA for Q4 FY24 was US$13.6 million (US$13.6M), down from US$13.9M in the previous quarter and from US$14.7M at the same time last year.
Similarly, Q4 FY24 revenue was down QOQ and YOY, US$61.3M versus US$64M and US$62.5M, respectively.
Quipt's profit margin in Q4 FY24 was 22.2%, higher than 21.1% in Q3 FY24 but lower than 23.5% in Q4 FY23.
"On both revenue and EBITDA, the quarter was thus modestly down from the firm's own recent standards, but EBITDA margin was still solid in our view," Loe wrote. It also exceeded that of peer, VieMed, whose margin during the same quarter was 12%.
Quipt's Q4 FY24 core operating metrics were up modestly YOY. During the quarter, the company served 153,000 patients, more than its 147,000 in Q3 FY24. It set up or delivered 212,000 respiratory systems and resupplied another 120,000 to existing patients, versus 209,000 and 111,000, respectively, in Q4 FY23.
The company exited Q4 FY24 with cash of US$16.2M and debt of US$67.8M, noted Loe, the latter mostly due to its financing in Q2 FY23 for the Great Elm acquisition.
Persisting Stock Overhang
Loe pinpointed two factors creating business risk for Quipt and negatively affecting its share price.
One is the U.S. Department of Justice investigation, continuing beyond Leede's expected duration, into Quipt's billing of federal health insurers for CPAP equipment.
The other, Loe pointed out, is reimbursement headwinds due to the Medicare 75/25 rate having expired at the start of FY24. Medicare reimbursement rates no longer apply for durable medical equipment in non-rural areas that Quipt and its medical equipment peers now serve. The analyst wrote that Leede expects these headwinds to continue through FY25 and into FY26.
"With ongoing regulatory risk infused by the U.S. Department of Justice review of billing in Georgia, and with EBITDA/cash flow directionality trending downward if subtly, capital markets are clearly disinclined to ascribe a growth multiple to Quipt's EBITDA/cash flow expectations," wrote Loe.
Changing Market Perception
Quipt would be well served by altering the markets' perception of it, asserted Loe, and this would require an act beyond having another EBITDA-positive quarter.
One way to achieve this would be a "go-private transaction or acquisition by a private equity investor that could more aggressively value Quipt's track record of free cash flow generation than public markets have in recent trading sessions," wrote Loe.
Another strategy would be to implement a dividend policy with a separate rate-of-return mechanism for shareholders. Certainly, according to Loe, Quipt generates enough cash flow to sustain a quarterly dividend of US$0.05–0.10 per share.
"Independent of these options that may or may not transpire during our forecast period, we believe that Quipt is imminently capable of sustaining its quarterly EBITDA/margin at or above Q4 FY24 levels, and that is worth more than 3x EBITDA, in our view, if achieved," commented Loe.
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- Doresa Banning wrote this article for Streetwise Reports LLC and provides services to Streetwise Reports as an independent contractor.
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Disclosures for Leede Financial Inc., Quipt Home Medical Corp., December 18, 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.
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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.
