Investors currently have an attractive entry point to owning Canadian healthcare logistics company Andlauer Healthcare Group (Andlauer Healthcare Group Stock Quote, Charts, News, Analysts, Financials TSX:AND), according to Eight Capital analyst Ty Collin, who initiated coverage of the stock on Tuesday with a “Buy” rating.
Founded in 1991 where it began as Andlauer Transportation Services, AND is a leading supply chain management company with third-party logistics and specialized transportation solutions for the healthcare sector, focusing on temperature control, compliance, security and visibility throughout the supply chain.
The company went public in December 2019 at $15 per share and has since appreciated by about 215 per cent, outperforming the S&P/TSX by 195 per cent over that period, Collin noted, a pace which the analyst attributes to AND’s traits of strong growth, profitability and smart acquisitions.
“We view AND as a business of exceptional quality, with a combination of offensive and defensive characteristics well suited for today’s uncertain environment. We believe some investors misperceive AND as ‘just another trucking company,’ failing to take into full account its unique competitive qualities and potentially creating opportunity for those who are better informed,” Collin wrote.
First, on Andlauer’s defensive qualities, Collin said being in the healthcare tech space has the advantage of not being economically sensitive, noting that AND hasn’t had a year of declining sales in data going back to 2010.
“Thanks to strong CF generation and a conservative balance sheet, AND can fund growth internally and does not rely on accessing increasingly restrictive capital markets,” he said.
Next, Collin argued there are long-term industry and macro tailwinds in AND’s favour, pointing to an aging population, increasing regulation and a growing number of healthcare products requiring specialized transportation. The analyst said that over the past decade, AND has had an average annual organic growth rate of nine per cent.
Third, Collin said Andlauer has a “significant growth opportunity” in US expansion, where the company’s longstanding customer relationships and unique capabilities give it a leg up on incumbent US competitors.
Fourth, Collin said AND has a durable moat around it with wide and stable margins, high barriers to entry in the Canadian Healthcare Logistic industry, high customer switching costs and economies of scale.
“AND holds market- leading positions with limited direct competition, resulting in pricing power,” he said.
Lastly, Collin sees upside optionality from M&A in Andlauer, where he estimates the company could acquire up to $30 million of EBITDA while remaining within management’s leverage comfort level of up to 2x EBITDA. That would represent a potential upside of $5 per share, Collin said.
With his “Buy” rating, Collin started AND out with a 12-month target price of $62.00 per share, which at press time represented a projected return of 31.9 per cent.
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