CRH Medical offers services and related medical instruments and equipment to physicians focused on providing screening and treatment of gastrointestinal ailments. Investment dealer Acumen Capital says the CRH Q2 results offer an excellent prognosis for 2016 for this healthcare stock.
Vancouver-headquartered CRH Medical Corp. (TSX—CRH) reported results for the second quarter of 2016 that included revenue of $16.6 million, representing a 52.4 per cent increase year-over-year driven largely by acquisitions.
The company reported total quarterly earnings before interest, taxes, depreciation, and amortization (EBITDA) attributable to shareholders of $7.1 million, an increase of 22.1 per cent year-over-year, again as a result of acquisitions.
Expressed as a percentage of revenue, the medical services and equipment supplier’s recent EBITDA reached 42.5 per cent compared to 53.1 per cent last year. The difference reflected a larger non-controlling interest in joint-venture clinics, lower average procedure rates, and slightly higher expenses, Acumen Capital analysts Brian Pow and Nick Corcoran explain.
Second-quarter results benefited from the consolidation of acquisitions completed before the start of the quarter. However, the reported numbers included higher expenses and some one-time items that did not meet the Acumen analysts’ estimates.
Messrs. Pow and Corcoran said: “In spite of the miss, we thought it was a solid quarter of performance.”
CRH reported a cash balance of $4.2 million, long-term debt of $47 million, and working capital of $500,000 at the end of the second quarter. The company was in compliance with all of its debt covenants.
High growth healthcare stock is a buy
The analysts assert that the risks associated with the company’s acquisition strategy are becoming more manageable based on the number of transactions that CRH has now completed and recent favourable financial trends.
Consequently, they have upgraded their recommendation for CRH to ‘buy’ from a previous ‘speculative buy’. Messrs. Pow and Corcoran also increased their 12-month target price for the company from $6.20 per share to $6.90.
They calculated the target price by compiling two distinct peer groups, one to assign a value to CRH’s medical services business and one to allocate a potential value to the medical instruments and equipment business. The multiple applied to enterprise value-to-EBITDA to arrive at the valuation is based on a blended average of the 2016 and 2017 peer group means.
The company reported strong year-over-year revenue growth for both anesthesia services and product sales in 2016’s second quarter.
Anesthesia services revenue growth was primarily driven by acquisitions while product sales increased from internal initiatives. Total operating expenses for the anesthesia services segment were up 90.6 per cent, to $9.4 million, as a result of the acquisitions.
Investor’s Digest of Canada , MPL Communications Inc.
133 Richmond St. W., Toronto, On, M5H 3M8, 1-800-804-8846