AHCO

Publicly traded companies mentioned herein: AdaptHealth Corp (AHCO)

Highlights

The presenter outlined his thesis on AHCO, a 2019 vintage SPAC, seeing it as a misunderstood story with a very solid management team. The company has a sound acquisition strategy of rolling up companies in the durable medical equipment market. The stock has traded down on more than just the broader SPAC selloff. For one, the former CEO has an indictment from the Dutch government charging tax fraud. The company also has been very acquisitive but hasn’t demonstrated the best disclosure around organic growth. Lastly, the company has also been the subject of a recent short seller’s report outlining all these issues.

Our diligence suggests that the former CEO’s tax problems have nothing to do with the business. The acquisitions they’ve done have been tremendous, and the acquisition strategy is working. We see organic growth in the high single-digits going forward. We are targeting 11x EBITDA for the stock which equates to 60% upside. The stock is currently trading at 7.5x 2022 EBITDA. Our take is that management is actively working to address some of these communication/disclosure problems from the past.

Q: Was this a well-known short issuing the report?

No, not a well-known short seller. The report outlined the CEO issues and claimed the M&A department was in disarray when our own diligence and checks on that suggest that is not at all true. We think that was just one former disgruntled employee making some disparaging remarks.

We acknowledge that it is indeed tough to calculate the real organic growth of this business. That is challenging to calculate because acquisitions in healthcare entail complexity including transfer of tax IDs and transitioning of existing contracts to new entities.

We think the correct way to look at growth right now is on a pro forma basis with a focus on combined revenue YoY. That is showing a solid trend, and that's how management will showcase growth going forward.