Healthcare Stock Has Reasonable Value Before Seasonal Profit, Analyst Says
Research Report

Leede Jones Gable analyst Dr. Douglas W. Loe maintained a Buy rating on K-Bro Linen Inc. (KBL:TSX) in a report published on March 25, 2024.

The analyst slightly revised his price target upward to CA$43.00 from CA$41.25, implying a potential total return of 29.6% (including a 3.5% dividend yield) based on the current price of CA$34.10.

Key Financial Results

According to Loe, K-Bro Linen reported strong FQ423 results by seasonal standards, with consolidated revenue/EBITDA/margin of CA$82.5M/$14.3M/17.3%, despite predictable sequential softness compared to FQ323 data of CA$86.9M/$17.7M/20.4% due to hospitality seasonality.

Dr. Loe projected F2024 revenue/EBITDA/EPS/AFFO per share of CA$330.9M/$57.7M/$1.91/$2.89, compared to F2023 data of CA$320.9M/$56.8M/$1.64/$3.02, and introduces F2025 forecasts of CA$341.5M/$61.1M/$2.34/$3.09, which assume 3.1%/3.2% sequential revenue growth and 1.7%/5.8% EBITDA growth in F2024/25, respectively.

Analyst Commentary

Dr. Loe stated, "We are maintaining our Buy rating on KBL while slightly revising our PT upward to CA$43.00 from CA$41.25 based in part on shifting forward the reference year in our EBITDA-EPS-AFFO-based valuation methodologies to F2025 (was F2024 previously) and by infusing FQ423 data just reported into our model as a new baseline from which we project growth."

The analyst noted that while K-Bro could sustain growth by acquisition into F2024/F2025, the model does not overtly incorporate assumptions on the pace or magnitude of future acquisitions. Dr. Loe expects FQ124 revenue/EBITDA/AFFO to be sequentially flat based on seasonally soft hospitality laundry processing volumes, with offsetting seasonal strength transpiring thereafter in FQ224 and increasing further into FQ324.

Valuation

Dr. Loe's revised price target of CA$43.00 was based on the average of EBITDA-EPS-AFFO valuation methods using F2025 as the reference year. This price target corresponded to a one-year return on share price appreciation alone of 26.1% and a total return (including a 3.5% dividend yield) of 29.6%.

The analyst wrote that he believes that K-Bro Linen represents reasonable value at current levels before seasonal profitability strength materializes in the coming quarters.

Dr. Loe concluded, "Accordingly, we believe that KBL represents reasonable value at current levels before seasonal profitability strength materializes in a quarter or two."

Important Disclosures:

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2. This article does not constitute medical advice. Officers, employees and contributors to Streetwise Reports are not licensed medical professionals. Readers should always contact their healthcare professionals for medical advice.

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