Here’s why CareRx is a Buy right now

Canadian specialty pharmacy services company CareRx (CareRx Stock Quote, Charts, News, Analysts, Financials TSX:CRRX) is spiking this week on strong quarterly earnings  which saw the company show impressive top and bottom line growth. But the party’s just beginning for CareRx, according to portfolio manager Stephen Takacsy, who thinks there’s a tonne of reasons for investors to like this Canadian consolidation story.

“We keep pounding the pavement on this one,” said Takacsy, CEO of Lester Asset Management, who nominated CareRx as one of his top picks for the 12 months ahead on a BNN Bloomberg segment on Tuesday.

“They’re Canada’s largest provider of pharmacy services to senior homes, so they’re now the number one player in Canada with a market share of over 20 per cent,” he said. “They just bought two large competitors out and they’re going to realize huge cost synergies by consolidating the fulfillment centres that they have across Canada that overlap with these two companies they just bought.”

“They’re also winning new business from competitors, so they’re growing organically and sales are expected to be around $400 million next year. And they’re also starting to get into the telehealth field by providing virtual care to seniors facilities in partnership with Think Research,” Takacsy said.

Formerly known as Centric Health, CareRx made a transformative acquisition in May of last year, buying RemedyRx and its specialty pharmacy services to over 18,500 long-term care residents across Canada. The company also reoriented itself, divesting its retail pharmacy business and its surgical and medical centres to concentrate on consolidating the fragmented pharmacy services sector.

After a rebranding as CareRx and share consolidation last June, the company went about acquiring more businesses and signing new multi-year contracts with seniors home operators. On the M&A front, CareRx bought SmartMeds Pharmacy and its 2,400 beds earlier this year and then over the last few months acquired LTC pharmacy business from two companies, Medical Pharmacies Group and Rexall Pharmacy. On new contracts, the company announced in September adding 1,500 new retirement and LTC residents through an expanded contract with an Ontario-based operator. 

All told those moves have brought CareRx to now over 96,000 residents in over 1,600 communities, and the company’s latest quarterly financials bear witness to that growth. CareRx reported third quarter 2021 numbers on Tuesday, showing revenue up 56 per cent to $71.3 million, with the company saying the growth primarily came from the SmartMeds and Rexall LTC acquisitions as well as a partial contribution over the quarter from the Medical Pharmacies buy. The earnings numbers were just as good if not more impressive at $6.9 million in adjusted EBITDA for the quarter, up 79 per cent year-over-year.

“Each of our acquisitions, including that of the Medical Pharmacies Long-Term Care Pharmacy business, are performing in line with or ahead of expectations, and integration activities are on schedule,” said president and CEO David Murphy in a press release.

“As COVID-related impacts on our sector continue to subside, we are seeing increased opportunities to acquire new customers and add new beds. Organic growth in the third quarter alone consisted of more than 2,200 new beds, with additional wins that have been onboarded during the fourth quarter. This renewed momentum in organic growth, combined with a continued robust and active acquisition pipeline, makes us highly confident in our ability to continue our growth trajectory in the quarters and years ahead,” Murphy said.

The good news has caused CRRX to head north again after a two-months-long slide. Altogether, the 2021 year has been great for the stock which year-to-date is now up 61 per cent.

Takacsy says demographics are clearly in CareRx’s favour, with an aging population in Canada looking to fill out long-term care homes for years to come.

“The pandemic was a big wake up call for these senior homes to be able to do remote diagnosis and remote prescriptions,” said Takacsy. “CareRx is also launching Pharmacy At Your Door for seniors living at home. Over the next 15 years, the number of seniors in Canada is going to double, so they have huge tailwinds and it trades only at 7x forward EBITDA versus another company called Neighbourly that’s consolidating small pharmacies and has similar margins yet it’s trading at 20x EBITDA.”

“Everyone’s chasing the same stocks and those can get very expensive, whereas a company like CareRx which is maybe not as popular or sexy is trading at a bargain basement price. The company is super well managed and this stock is going to do very, very well for the next decade. There’s a lot of organic growth and acquisition growth ahead of them,” he said.

On the Pharmacy At Your Door offering, CareRx launched in July in Calgary, with the program supplying users with pharmacy needs without leaving their homes. 

“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 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.”