Labour issues persist for Canadian pharmacy services company CareRx Corp (CareRx Corp Stock Quote, Charts, News, Analysts, Financials TSX:CRRX), but the stock is still looking attractive, according to analyst Gary Ho of Desjardins Capital Markets. Ho provided an update to clients on CRRX on Tuesday where he reiterated a “Buy” rating and $4.25 target price, good for a projected one-year return at the time of publication of 86.4 per cent.
Ahead of first quarter earnings from Toronto-based CareRx on May 10, Ho said the Q1 is likely to be a trough quarter as far as EBITDA and margins go, given both the continuing tight labour market and the company’s loss last year of its Extendicare contract.
CareRx recently got a new CEO in former COO Puneet Khanna, who has over 20 years experience in pharmacy and senior care. Khanna joined CareRx in November 2020 after a post as CEO of software solutions provider MED e-care Healthcare Solutions.
Ho said Desjardins met virtually with Khanna, with Ho saying it’s likely business as usual for the company and its strategy, as no major changes are expected.
On CareRx’s labour issues, Ho wrote, “We believe CRRX is seeing early signs of a marginal recovery in vacancies and turnover rates, particularly for non-registered staff (ie pharmacy assistants); for registered staff (pharmacists and technicians), they vary by region. This is aided by initiatives such as remote work, electronic workflows, robotics to relieve physical bottlenecks and cross-pollinating best practices across sites.”
For the first quarter, Ho is estimating $93.9 million in revenue and adjusted EBITDA of $6.9 million (previously $7.1 million) for a margin of 7.3 per cent (previously 7.5 per cent).
For CareRx’s 2022, the company’s revenue rose to $381.7 million from $262.6 million in 2021, while adjusted EBITDA came in at $32.3 million versus $22.9 million in 2021.
As far as CareRx’s organic pipeline goes, Ho said it remains active and has normalized to pre-COVID levels. The analyst is expecting the company to add 4,500 beds in 2023 and 6,100 beds in 2024 to hit about 104,500 beds by the end of 2024. Currently, CareRx serves over 94,000 residents in over 1,600 seniors and other congregate care communities, which includes long-term care homes, retirement homes, assisted living facilities and group homes.
On valuation, Ho said, “We reiterate our Buy rating. At 6.2x 2023 EBITDA vs 6.5‒10.6x historically, CRRX is attractively valued.”