Recession-proof your portfolio with this stock

It’s a different world out there for healthcare and health tech stocks, which has been hit hard this year by a market none too keen on the space. But just like death and taxes, there are a few constants in life that investors should be paying attention to when putting their money to work in the current environment. 

That means looking for names that’ll weather the storm despite pullbacks across the board, and for your money, portfolio manager Stephen Takacsy says Canadian pharmacy consolidator CareRx (CareRx Stock Quote, Charts, News, Analysts, Financials TSX:CRRX) is a good option for investors looking to recession-proof their portfolios.

Takacsy, CEO of Lester Asset Management, likes CareRx even though the stock is down by about a third over the past 12 months.

“This has been a core position of ours for many years. It’s Canada’s largest institutional pharmacy to senior care facilities, so they provide the medication to long-term care facilities and retirement residences,” said Takacsy, speaking on BNN Bloomberg on Thursday.

“They made two transformative acquisitions over the last few years which has made them really the number one player in Canada with over 20 per cent market share,” he said. “They’ve been winning business from competitors, buying up small players and automating the fulfillment centres across the country, and we’re continuing to expect strong organic and acquisition and sales growth as well as margin improvement over the next few years.”

Formerly known as Centric Health, Toronto-headquartered CareRx made a major acquisition two years ago with Remedy Holdings, which made the company one of Canada’s largest specialty pharmacy services providers. By the numbers, CareRx went from serving about 31,000 residents in over 460 seniors communities, including long-term care facilities, retirement homes and assisted living facilities, in its pre-Remedy existence in early 2020 to now serving over 90,000 residents in over 1,600 facilities. 

Along with acquisitions of Remedy and then Medical Pharmacies Group (MPGI) last year, CareRx has been expanding its business organically, picking up more contract wins and recently opening up a new fulfillment centre in Burlington, Ontario.

Revenue for CareRx increased by 108 per cent year-over-year to $93.2 million in its most recently reported quarter, the company’s first quarter 2022, delivered in May. Earnings have also jumped, with adjusted EBITDA increasing by 111 per cent to $8.6 million for the quarter.

At the same time, the company recently lost a big contract to a competitor, taking out about six thousand beds from its count, while recent drug pricing adjustments have hurt its top and bottom lines by lowering revenue on generics. 

“The first quarter of 2022 once again saw strong year-over-year revenue and adjusted EBITDA growth, driven by both acquisitions and organic growth and by continued outstanding execution by our team,” said David Murphy, President and CEO, in a press release. 

“We delivered a solid start to 2022, despite average bed count for the quarter being slightly dampened by the impact of the Omicron variant. Importantly, during the quarter we continued to execute in areas that will support our growth in the near- and long-terms,” he said.

For Takacsy, CareRx has a great future ahead of it regardless of the length of an economic downturn, as its business in seniors pharma will be in continued and strengthening demand for years to come.

“If you want a good, stable, recession-proof business with great organic and consolidation growth — obviously, the demographics are behind them. Over the next 15 years the number of seniors in Canada is going to double — so, they have great tailwinds and it’s trading at a very reasonable valuation of about 8x next year’s EBITDA,” Takacsy said.

“CareRx also provide telehealth services to senior facilities using virtual care. It’s a partnership with Think Research. They’ve also launched a pharmacy at the door for seniors who want to continue living at home, and they’re now distributing medical supplies and nutritional supplements through their revenue care brand to senior homes and long term care facilities,” he said.

CareRx saw its share price rise by 48 per cent over the 12 months of 2021, while so far this year the stock is currently down about 26 per cent.