Home-Based Respiratory Care Expansion Will Drive Long-Term Healthcare Cash Flow Tailwinds

Catalysts

About Viemed Healthcare

Viemed Healthcare provides home based medical equipment and clinical services focused on respiratory care, sleep therapy, maternal health products and complementary healthcare staffing.

What are the underlying business or industry changes driving this perspective?

• Expansion of home based care as a preferred setting for chronic respiratory and sleep patients supports continued double digit growth in ventilation and sleep volumes, which should drive sustained revenue expansion and higher absolute earnings.
• Regulatory moves toward clearer national coverage criteria and improved Medicare Advantage approvals for at home ventilation are expected to accelerate authorizations and cash collections, supporting stronger top line visibility and steadier net margins.
• Rapid scaling of the sleep therapy and resupply franchise, including record new patient starts and a growing recurring resupply base, should increase high quality, repeatable revenue and improve EBITDA through operating leverage on existing infrastructure.
• Nationwide rollout of maternity and breast pump offerings on Viemed's established platform opens a large commercial and Medicaid opportunity that diversifies the payer mix and is likely to add incremental revenue with attractive contribution margins.
• Deployment of AI enabled revenue cycle and intake tools across service lines is expected to shorten billing cycles, reduce manual labor and optimize SG and A, which should translate into higher free cash flow conversion and expanding net income margins.

Assumptions

How have these above catalysts been quantified?

• Analysts are assuming Viemed Healthcare's revenue will grow by 18.9% annually over the next 3 years.
• Analysts assume that profit margins will increase from 5.4% today to 12.0% in 3 years time.
• Analysts expect earnings to reach $34.4 million (and earnings per share of $0.94) by about December 2028, up from $9.2 million today.
• In order for the above numbers to justify the price target of the analysts, the company would need to trade at a PE ratio of 19.3x on those 2028 earnings, down from 33.0x today. This future PE is lower than the current PE for the CA Healthcare industry at 24.9x.
• Analysts expect the number of shares outstanding to grow by 0.84% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 5.93%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• Sleep therapy growth is currently far outpacing ventilation, and management acknowledges revenue mix is shifting toward lower margin products. If competitive pressure, price compression, or slower resupply uptake persists, overall gross margin and EBITDA margin could erode, limiting earnings expansion and free cash flow growth.
• The strategy depends heavily on favorable and stable reimbursement frameworks for home based care, including Medicare Advantage and a potential return of competitive bidding. Any adverse rulemaking, pricing cuts, or higher audit intensity could reduce realized rates and increase administrative burden, pressuring revenue visibility and net income margins.
• Rapid diversification into new lines such as maternity and behavioral health staffing, combined with ongoing acquisitions like Lehan's, raises execution and integration risk. Missteps in scaling systems, culture, or compliance could dilute operational efficiency, raise SG and A, and slow earnings growth.
• The long-term thesis leans on AI driven process improvements and technology enabled scalability. If these tools underdeliver, are slow to deploy across service lines, or require higher than expected investment, the anticipated SG and A leverage and cash flow conversion benefits may not materialize, limiting expansion in net margins and free cash flow.
• Growth plans emphasize continued expansion in rural and COPD prevalent regions and a nationwide maternity rollout. If referral patterns, payer relationships, or demographic trends shift unfavorably in these target markets, organic volume growth could decelerate, curbing revenue growth and constraining operating leverage and earnings.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The analysts have a consensus price target of CA$18.71 for Viemed Healthcare based on their expectations of its future earnings growth, profit margins and other risk factors.
  
• In order for you to agree with the analysts, you'd need to believe that by 2028, revenues will be $285.2 million, earnings will come to $34.4 million, and it would be trading on a PE ratio of 19.3x, assuming you use a discount rate of 5.9%.
  
• Given the current share price of CA$10.45, the analyst price target of CA$18.71 is 44.1% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.