CareRx has never looked better, says Beacon Securities

Beacon Securities analyst Doug Cooper says CareRx (CareRx Stock Quote, Chart, News TSX:CRRX) has never been in a better position either financially or fundamentally.

On Wednesday, Cooper delivered an update to clients on the healthcare service company where he reiterated his “Buy” rating and $9.00 price target, which at press time represented a projected 12-month return
of 117 per cent.

CareRx (formerly Centric Health Corporation) is a pharmacy company focused on seniors in long-term care homes, retirement homes and assisted living facilities. The company is fresh off the launch of its new brand and a 20:1 share consolidation last month, along with more recently a new strategic initiative called “Pharmacy at Your Door,” aimed at extending its product offerings beyond institutional setting to the at-home market.

On the latter, which is first launching in Calgary, the company says the at-home market is about ten times larger than its current facility-based market, giving CareRx lots of room to grow.

“Pharmacy At Your Door leverages the market-leading institutional pharmacy and technology capabilities of CareRx to deliver a convenient, safe and cost effective at-home pharmacy experience,” said CEO David Murphy in a press release. “This new business will better serve seniors and other customers who have limited time, transportation challenges, concerns about visiting retail pharmacies in light of COVID-19, or need support managing multiple medications and vitamins.”

In his update, Cooper also pointed to CareRx’s strengthened capital base which took in a $42-million credit facility in March and a $11.5-million equity offering in June and the company’s major acquisition in May of RHI, which increased CareRx’s bed count by 60 per cent.

All in all, it’s been a busy and fruitful few months, according to Cooper, who wrote, “The net result of all these initiatives is that the company has never been in a better financial or fundamental position.”

The analyst said the institutional pharmacy space is currently made up of a lot of small Mom-and-Pop companies, making the sector ripe for consolidation.

“We believe it is conceivable that within the next two to three years, CareRx could have 80,000-100,000 beds or a 20-25 per cent market share. As a point of reference, our math would indicate that each incremental “bed” from its current level would add ~$800 to EBITDA. In other words, an incremental 20,000 beds to 70,000 would add $16 million to EBITDA for a run-rate of ~$31 million,” Cooper wrote.

As for CareRx’s Pharmacy at Your Home initiative, Cooper pointed out that institutional settings represent only ten per cent of the living arrangement for Canadian seniors, a group of over four million which tends to take the majority of medication in the country.

Within that context, CareRx’s new move represents a “huge revenue opportunity,” according to Cooper.

“Recall that PillPack in the United States, who started a similar business to CRRX’s “Pharmacy at Your Home”, was bought by Amazon last year for US$0.8 billion. The question will be patient acquisition, which could be done through targeted marketing or partnerships with healthcare providers. While we have no revenue expectation modelled, we believe this could be the cherry on the top of an already excellent growth story,” Cooper wrote.

Cooper is calling for fiscal 2020 revenue and adjusted EBITDA of $192.3 million and $15.6 million, respectively, and for fiscal 2021 revenue and adjusted EBITDA of $222.5 million and $21.4 million, respectively.