CareRX has price target lowered at Desjardins

Ahead of what he sees as a slow margin recovery in 2023, Desjardins Securities analyst Gary Ho has lowered his price target on CareRX.

In a research update to clients today, Ho maintained his “Buy” rating on the stock, but dropped his twelve-month price target from $4.00 to $3.75.

Ho says he believes the street has expectations that CareRX is probably incapable of meeting, at least in the short term.

“CRRX reports before market on August 10. While we believe 1Q was a trough-margin quarter and we should see incremental improvements in 2Q, the pace of margin recovery may be gradual in the near term before ramping up in 2024. We tempered our margin cadence for 2023 and 2024, and believe consensus is too aggressive. Our target goes to C$3.75 (from C$4.00) on lower estimates and a slightly negative impact from the auto-conversion of the 8.25% convertible debentures. We maintain our Buy rating,” the analysts wrote.

On May 10, CRRX reported Q1 results that saw revenue decrease by two per cent to $91.4-million. CEO David Murphy, who will be stepping down, said he was encouraged by the developments.

“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 health care labour market,” he said. “Together, we have grown CareRx into the leading national congregate care pharmacy provider, delivering critical services to our most vulnerable populations. I’m proud of what we have built and am extremely confident about the next chapter of CareRx’s growth under Puneet’s leadership.”

“We remain focused on optimizing CareRx’s business operations as we continue to create a best-in-class, standardized operating model, and leverage our scale and technology,” said COO and incoming CEO Puneet Khanna. “This standardization of our operations through the implementation of innovative technologies and workflows will allow us to address some of our ongoing health care labour market challenges while providing the framework to drive growth in the near and long term.

Ho expects CRRX will post an Adjusted EBITDA loss of $28.8-million on revenue of 376-million in fiscal 2023. He thinks those numbers will turn to an Adjusted EBITDA loss of $34.4-million on a topline of $397-million the following year.