DRI Healthcare Trust gets Outperform rating from Raymond James

Investors looking to take part in the biopharma sector while at the same time limiting their risk should be thinking about DRI Healthcare Trust (DRI Healthcare Trust Stock Quote, Charts, News, Analysts, Financials TSX:DHT.UN). That’s according to Raymond James analyst Rahul Sarugaser, who initiated coverage of the stock on Tuesday, saying there’s a wide asymmetry between DRI’s share price and its net asset value.

DRI Healthcare Trust is an open-ended biopharmaceutical royalty-holding trust, established as a public vehicle in October 2020 and managed by DRI Healthcare. The trust sources and acquires mid-sized royalty assets, targeting products for chronic and critical illnesses that are medically necessary and have the benefit of strong intellectual property protection and are marketed by leading life sciences companies.

Since 2006, DRI has deployed over $2.5 billion through the acquisition of 70 royalty streams on 46 products, while its current portfolio has 23 royalty streams on 19 products, including Eylea, Spinraza, Keytruda and recently-added first-in-class diabetes drug TZIELD.

Sarugaser said DRI has an active pipeline of about 17 deals with a combined value of about $2.4 billion. The company plans on executing $850-$900 million in transactions over its first five years as a public company and with an annual growth rate on royalty receipts of between seven and nine per cent.

“For its first time since IPO, DRI has in place a foundation primed for growth. We see DRI’s work to complete the replacement of its mature/expiring cash flows as a significant achievement and a material derisking event. We believe the market asymmetry identified here presents a solid near-term entry point,” Sarugaser wrote.

Sarugaser said DRI’s niche is in targeting transactions that are out-of-scope for other, larger-cap royalty buyers like Royalty Pharma as well as for institutional asset managers and pension funds. That focus allows DRI to structure bespoke proprietary transactions, Sarugaser said, on high-quality royalty streams.

Sarugaser has started DRI off with an “Outperform” rating and $13.50 target price, which at the time of publication represented a projected one-year return of 78.6 per cent.

“We identify a wide market asymmetry between DRI’s stock price and its current NAV (>$10/sh). Further, as the Trust executes the ~$300 million in incremental transactions it has guided to during 2023-2025—producing a robust calculable series of future cash receipts—we expect its valuation should correct toward our target,” he wrote.

On DRI’s financials, Sarugaser is projecting revenue to go from $88 million in 2022 to $101 million in 2023 and to $120 million in 2024. EPS is estimated to go from $1.87 per share in 2022 to $1.61 in 2023 and to $1.92 in 2024.