Desjardins Capital Markets analyst Gary Ho has lowered his target on pharmacy services company CareRx Corp (CareRx Stock Quote, Charts, News, Analysts, Financials TSX:CRRX), saying in a Thursday update that investors will need a little more patience, as a labour shortage in the healthcare space looks like a headwind that’ll be out front of CareRx at least over the near term. At the same time, Ho has maintained a “Buy” rating on the stock, saying CRRX is attractively undervalued at current levels.
Toronto-based CareRx provides pharmacy services to seniors living communities, currently serving over 93,000 residents in over 1,600 facilities, which include long-term care homes, retirement homes, assisted living facilities and group homes.
The company is due to report fourth quarter 2022 financials on March 9, ahead of which Ho has forecasted revenue of $94.2 million and adjusted EBITDA of $7.1 million.
Ho said CareRx continues to face challenges from above-normal vacancies, involving a longer fill time, a limited pool of candidates and higher turnover which adds to recruitment and training costs. The analyst maintained that the trouble is more pronounced for CareRx due to its institutional setting which requires more specifically trained staff and features a more competitive labour market.
Ho said CareRx’s vacancies have edged up since the holiday season.
“The shortages are most pronounced in pharmacy technicians, followed by pharmacy assistants (lower-salary positions that compete with other broader industries). CRRX is looking at creative avenues (eg bring people from retail or international pharmacists) but has not seen any signs of abatement,” Ho wrote.
As a result, Ho has lowered his margin estimates to 8.2 per cent in 2023 and 9.4 per cent in 2024.
“CRRX is in constructive discussions with the provinces to increase prices and improve funding, which if successful could alleviate some margin pressures,” he said.
By the numbers, Ho’s 2023 forecast now has CareRx’s revenue at $389 million compared to an estimated $382 million for 2022 and moving to $426 million for 2024. On earnings, adjusted EBITDA is expected to go from $32.2 million in 2022 to $31.8 million in 2023 and to $40.0 million in 2024.
CareRx’s share price has dropped significantly since mid-2021 highs, going from about $6.50 per share to now around $2.50.
With the update, Ho lowered his target from $5.00 to $4.50 per share, which at press time represented a projected one-year return of 87.5 per cent.