CareRx stock is a Buy, says Echelon

Pharmacy services company CareRx Corp (CareRx Corp Stock Quote, Charts, News, Analysts, Financials TSX:CRRX) delivered mixed results in its latest quarter, according to Echelon Capital Markets analyst Stefan Quenneville. But at current trading levels, the stock still looks like a good pickup, Quenneville argued in a Thursday report to clients where he kept a “Buy” rating and $5.25 target.

Revenue was down year-over-year in CareRx’s second quarter 2023, delivered on Thursday and registering a topline of $94.5 million compared to $96.9 million a year earlier and $91.4 million for the first quarter 2023. Adjusted EBITDA was $7.0 million compared to $8.8 million a year ago and $6.8 million a quarter ago.

The company said it’s still dealing with a challenging healthcare labour market but the upcoming year should deliver better results.

“With the growth in beds serviced in the second quarter, we have now substantially offset the fiscal 2022 customer off-boarding,” said Puneet Khanna, President and CEO, in a press release.

“CareRx will continue to focus on the execution of a comprehensive technology and operational process optimization program which is expected to result in cost savings and improved productivity. Over the next 12 months, these efforts are expected to drive improved financial and operating performance, strengthen our competitive advantage, and better position CareRx in this high growth industry,” he said.

CareRx’s revenue was slightly ahead of estimates, according to Quenneville, where the $94.5 million result compared to a $92.6 million forecast from Echelon and a $93.2 million consensus forecast. Adjusted EBITDA was a miss, however, with the $7.0 million result comparing to the $7.4 million forecast from Quenneville and $7.3 million from the Street.

At the same time, Quenneville said CareRx has put in efficiency and automation initiatives which are beginning to take hold which will help margins going forward. And structural tailwinds are in its favour, as well.

“We are maintaining our Buy rating and $5.25 price target on CRRX as secular tailwinds and compelling organic and inorganic growth opportunities remain in place and we continue to believe it remains compelling value for long-term investors given its leading competitive position,” Quenneville wrote.

For the upcoming third quarter, Quenneville is forecasting revenue of $95.2 million and adjusted EBITDA of $7.5 million. At press time, his $5.25 target implied a one-year projected return of 144 per cent.

“While we have made some slight revisions to our model, our outlook remain materially unchanged. As such, we are maintaining our Buy rating and $5.25 PT based on an 11.5x 2023 EV/EBITDA multiple, which is in line with historic peer valuations. Given that CareRx currently trades at 6.7x, we continue to believe that the stock represents compelling value at current prices,” he said.