The timing of Centric Health (TSX:CHH) CEO David Cutler’s retirement surprises him, but Canaccord Genuity analyst Neil Maruoka still thinks the stock is a buy.
On Monday, Centric Health announced that CEO David Cutler would retire on January 31 of next year. The company said that until a replacement is found chairman Dr. Jack Shevel would fill the role.
“It has been a pleasure leading Centric for the last five years, and I wanted to thank the board of directors for this opportunity,” Cutler said. “Centric has truly undergone transformational change and is primed for the significant growth opportunities that await. There are a number of very talented individuals at the company, and I have no doubt that they will continue the work that we have started together to deliver on a ‘patient first’ approach while continuing to drive stakeholder value.”
Maruoka says Centric has some big shoes to fill.
“Although Mr. Cutler is approaching retirement age, we are surprised by the timing of this announcement, particularly during the onboarding of new contracts and the pending entry into Quebec,” the analyst says. “We believe Mr. Cutler has been instrumental in delevering the company and fashioning the growth strategy for the Specialty Pharmacy segment; however, recent operational challenges have hampered the transitioning of new contract wins, slowing revenue growth over the past few quarters. Centric has initiated an executive search for a new CEO with the goal of finding a replacement before Mr. Cutler’s retirement date. If a new CEO is not found by then, Chairman Dr. Jack Shevel will take over the role on an interim basis. Until a permanent replacement is identified, we view Mr. Cutler’s departure to be incrementally negative, as we are unsure of the bench strength at Centric.”
In a research update to clients today, Maruoka maintained his “Buy” rating and one-year price target of $1.10 on Centric Health, implying a return of 83.3 per cent at the time of publication.
Maruoka thinks Centric will generate EBITDA of $18.4-million on revenue of $172.7-million in fiscal 2017. He expects those numbers will improve to EBITDA of $24.6-million on a topline of $207.4-million the following year.