On Wednesday, Benchmark revised its stock price target for Quipt Home Medical Corp. (NASDAQ:QIPT), reducing it to $7 from the previous $9, while still recommending a Buy rating for the stock. The adjustment follows the company's third fiscal quarter report, which showed revenue growth that was essentially flat and slightly below the consensus expectations.
The company's performance in the third quarter was influenced by several challenges, including the expiration of Medicare's 75/25 rate relief at the beginning of 2024, a diminished Managed Care (MA) contract, and the repercussions of the Change Healthcare (NASDAQ:CHNG) cyberattack. Despite these obstacles, Quipt Home Medical managed to maintain its revenue levels by increasing volumes.
Looking forward to the fourth fiscal quarter, Benchmark now expects revenue to remain flat, a more cautious stance compared to the previously anticipated 1.5% sequential growth. However, for the fiscal year 2025, the analyst predicts Quipt could achieve an 8%-10% organic growth rate by the second quarter, which ends in March.
This optimism is based on the company's ongoing contract growth with payers, market expansion efforts, sales team enhancements, and the potential for cross-selling newly added diabetic products to its existing patient base without significant increases in selling, general, and administrative expenses (SG&A).
Quipt Home Medical has also reported a 9% increase in resupply revenue for sleep therapy and supplies, which accounts for half of the company's revenues. This is noteworthy as there has been no observed impact on demand in this segment from GLP-1 medications. Moreover, the company's management has indicated an active mergers and acquisitions (M&A) pipeline, which could provide further growth opportunities.
The new stock price target of $7 implies an enterprise value to EBITDA (EV/EBITDA) multiple of 5.9 times for the calendar year 2024. This valuation represents a discount when compared to Quipt's closest peers, as well as to the valuation established for the upcoming acquisition of Rotech Healthcare by Owens & Minor (NYSE:OMI).
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