Analysts at Canaccord Genuity (TSX:CF, LSE:CF) Capital Markets have reiterated a 'Buy' rating and issued an $8 price target on CareRx Corporation (TSX:CRRX).
In a note to clients titled “An overview of why we ‘care,’” the Canaccord analysts noted that CEO David Murphy has transformed the company since taking the reins in 2018, selling its surgical and medical division and using the proceeds to de-lever the balance sheet and focus on it specialty pharmacy division.
Meanwhile, CareRx completed five acquisitions in the next years, adding more than 60,000 beds. Today, the company serves over 95,000 beds, more than 20% of the roughly 425,000 beds in Canada.
READ: CareRx closes acquisition of Hogan Pharmacy Partners, inks multi-year partnership with seniors living operator
“Management has set a target of reaching 130K beds serviced and $500 million in revenue by 2024,” the analysts noted. This is made possible in part by Canada’s aging population.
They pointed out that during 2020-2021, the supply of retirement beds and long-term care beds in Canada grew 4% and 5%, respectively. What’s more, the portion of the Canadian population aged 65 or older is expected to increase from 19% today to 24% in just 15 years, which would result in about 3.1 million more senior citizens in 2037.
On the other side of the coin,the Cannacord analysts see limited headwinds standing in the way.
“In our view, the only near-term pricing headwind relates to a recent decrease in the price of generic molecules; however, given the company's history of successfully offsetting the Ontario and Alberta price decreases, we believe cost-cutting initiatives and operating leverage will eliminate this impact,” said the analysts.
Shares of CareRx traded at C$3.72 on Tuesday.
“CRRX trades at 6.0x our 2023 adjusted EBITDA estimate, versus peers at 9.4x,” the analysts pointed out. “We value the business using a 12x multiple, which is in line with the long-term industry average. We believe multiples have been temporarily compressed due to inflation/recession fears, but will ultimately rebound to historic levels when investors see evidence that pharmacy companies are resilient to these headwinds.”
Contact Andrew Kessel at andrew.kessel@proactiveinvestors.com
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