CareRx keeps Buy rating with Desjardins

Labour challenges continue to dog pharmacy services provider CareRx (CareRs Stock Quote, Charts, News, Analysts, Financials TSX:CRRX) and the impact is clear in the company’s latest quarterly results. That’s the take from Desjardins Capital Markets analyst Gary Ho, who nonetheless reiterated a “Buy” rating on the stock in a Wednesday report.

Toronto-based CareRx is Canada’s leading provider of pharmacy services to seniors living communities, with a network of pharmacy fulfillment centres currently serving over 94,000 residents in over 1,600 seniors communities. 

The company reported its first quarter 2023 financials on Wednesday, featuring a two per cent year-over-year drop in revenue to $91.4 million and a 21 per cent drop in adjusted EBITDA. 

Management said the topline decline compared to a year earlier was the result of the loss of the Extendicare contract, completed in the fourth quarter 2022, which was offset by new beds onboarded over 2022. On earnings, the decline was attributed to the Extendicare loss as well as the tough labour market where the company continues to have a high number of open positions due to scarcity and increased competition for certain pharmacy positions.

“Our first quarter results were in line with our expectations and reflect our team’s exceptional work improving our business performance and managing the challenges we’ve been facing in the healthcare labour market,” said David Murphy, President and CEO, in a press release.

Looking at the results, Ho said the $91.4 million topline was below his estimate at $93.9 million as well as the consensus forecast at $94.8 million. Average beds service at 94,436 was slightly above his estimate at 94,044. On adjusted EBITDA at $6.8 million, Ho said it arrived in-line with his call at $6.9 million and the Street’s at $6.7 million. The analyst noted that labour issues set the EBITDA back by $1.7 million versus $1.5 million for the fourth quarter 2023. 

Ho assessed the impact of the quarterly announcement to be neutral.

“As expected, the labour impact worsened sequentially in 1Q (-$1.7 million to EBITDA), driving a 10bps sequential margin decline. On the [conference] call, we will be looking for: (1) an update on labour issues; (2) margin recovery expectations; (3) organic growth/bed count outlook; and (4) commentary from new CEO Puneet Khanna,” Ho wrote.

CareRx’s share price has been dropping over the past couple of years, going from about $6.50 per share as of May 2021 to now in the $2-$2.50 range. 

With his maintained “Buy” rating, Ho kept a 12-month target price of $4.25, which at press time represented a projected return of 88 per cent.