It’s been a remarkable year for CareRx Corp, says iA Capital

The consolidation work continues for CareRx Corp (CareRx Stock Quote, Chart, News, Analysts, Financials TSX:CRRX), according to Chelsea Stellick of iA Capital Markets. In an update to clients on September 14, Stellick kept her “Buy” rating while raising her target price on CRRX, saying the company is executing on its expansion plans in the pharmacy services sector.

Headquartered in Toronto, CareRx (formerly Centric Health) is currently Canada’s largest provider of specialty pharmacy services, with over 52,000 residents in over 900 seniors communities (representing a 12-per-cent market share by number of beds), including long-term care (LTC) homes, retirement homes, assisted living facilities and group homes in Ontario, Alberta, British Columbia and Saskatchewan.

Stellick’s re-evaluation comes after CareRx announced a 1,500-bed expansion to an existing seniors home pharmacy contract in Ontario.

“The decision by our customer to consolidate from using multiple pharmacy service providers to using CareRx exclusively is a testament to our compelling value proposition, service differentiation, and focus on resident safety and wellbeing,” said David Murphy, President and Chief Executive Officer of CareRx in the company’s September 14 press release. “This win, combined with our recent M&A activity, puts us one step closer to achieving our target of 100,000 beds serviced.”

Stellick notes that the beds should be added to 19 locations within the CareRx network within the fourth quarter of 2021, which Stellick estimates should bring the company between $5 million and $6 million in incremental annualized revenue, with incremental annualized EBITDA coming in between $1 million and $1.5 million.

Stellick is also impressed with the company’s ability to quickly grow its position in the Canadian seniors pharmacy market through acquisitions and new contracts.

“This contract expansion is the result of a seniors living and congregate care operator in Ontario switching from multiple pharmacy service providers (including CareRx) to using CareRx exclusively,” Stellick said. “We believe CRRX will continue to consolidate the market with organic and acquisitive growth, particularly by adding beds with large seniors home operators that require reliability and scale, in the aftermath of its major M&A activity in 2020-2021.”

CareRx has been busy on the acquisition front, completing its acquisition of SmartMeds Pharmacy in April for $4 million in cash and $475,000 in common shares to add 2,400 beds to its network, followed by completing the acquisition of Rexall Pharmacy Group’s long-term care pharmacy business in Ontario and Northern Alberta for $3.5 million in cash.

Most recently, the company completed its acquisition of Medical Pharmacies Group Limited’s long-term care division for $70 million cash and the issuance of over 550,000 common shares, which brings an expected run-rate annualized revenue contribution of approximately $150 million and Adjusted EBITDA of $10 million to $12 million, as well as cost savings synergies of a minimum of $5 million

The early closing of the Medical Pharmacies Group acquisition prompted Stellick to slightly revise some of her financial projections, raising her revenue estimate for 2021 to $254 million from $244.3 million, marking a potential year-over-year increase of 56.6 per cent, while also raising her 2022 estimate to $398.2 million from $392.5 million, marking a potential year-over-year increase of 56.8 per cent.

Stellick’s adjusted EBITDA projections also received a slight revision, with the 2021 estimate now elevated to $22.2 million from $21.9 million, good for a potential margin of 8.7 per cent. The 2022 estimate moves up to $46.1 million from $44.9 million, producing a potential margin of 11.6 per cent.

Meanwhile, Stellick projects EPS will become positive for the first time in 2022, with a projected return of $0.07/share.

Stellick’s key trading multiples project a solid picture for the company, with EV/Revenue slightly rising to 1.1x in 2021 from 1x in 2019 and 2020, then dropping to a forecasted 0.7x in 2022. Meanwhile, the EV/adjusted EBITDA multiple is forecast to drop from 21.2x in 2020 to 12.2x in 2021, then to a forecasted 5.9x in 2022.

Overall, Stellick said the Medical Pharmacies Group acquisition was the culmination of a great year for CareRx as a business.

“CareRx has made remarkable strides as a business over thelast year, whichculminated in Q3/21 with the acquisition of MPGL,” Stellick said. “When we initiated coverage, CRRX had set out a goal to expand beds under contract to 100,000 by 2023. Following the SmartMeds, MPGL and Rexall acquisitions adding approximately 2,400, 36,000 and 4,200 beds, respectively, the Company is well on its way to reaching this goal ahead of schedule. We anticipate that CRRX will nearly reach its target of 100,000 beds by the end of 2021 and will continue to add a run-rate of 10,000 beds per year.”

CareRx Corp’s share price has steadily increased throughout 2021, providing a return of 54.6 per cent for the year to date with a high point of $6.94/share coming on July 5. With the update, Stellick has a new target of $9.00 per share (previously $9.25), which at press time represented a projected one-year return of 48.0 per cent.