CareRx Corporation wins price target raise at Beacon

CareRx Corporation (CareRx Corporation Stock Quote, Chart, News, Analysts, Financials TSX:CRRX) reported second-quarter fiscal 2025 results in line with expectations, but Beacon Securities analyst Doug Cooper said the quarter marked a key turning point for the company.

In a July 31 note, Cooper called it “the most profitable quarter in its history” and raised his price target to $6.25 from $5.00 while maintaining a Buy rating. He highlighted improvements across four areas: bed count, margins, operating leverage, and the balance sheet.

CareRx is a Canadian provider of pharmacy services to seniors living and other congregate care communities, including long-term care homes, retirement residences, assisted living facilities, and group homes.

The company added approximately 3,000 new beds in the second quarter, bringing its total to 91,062, the first quarter of net bed growth in two years.

“The new beds came predominantly from an existing client (Yorkville/Southbridge) who made an acquisition and whose beds transferred to CRRX,” he said,” CRRX’s stock price has historically followed the bed count, first down and now up. As bed count growth continues, we expect this relationship to hold.”

Q2 marked a record quarter for CareRx, with EBT excluding extraordinary items at $1.7-million, or 1.9% of revenue, and Adjusted EBITDA margin climbing to 8.8%.

Cooper said this was “the highest from both an absolute and margin basis in the history of the company,” and highlighted it as the second consecutive quarter of positive net margin for CareRx, a milestone the company only achieved once before.

CareRx reported Q2 EBITDA of $8-million on $91.4-million in revenue, compared to $7.77-million in EBITDA on $89.6 million in Q1. The company generated $0.23-million in incremental EBITDA on $1.8-million in additional revenue, a flow-through rate of 13%, compared to the reported margin of 8.8%.

“We believe this gives investors some insight as to the operating leverage as incremental revenue is added on a fixed infrastructure,” Cooper said.

With a debt-to-LQA EBITDA ratio of 1.1x, CareRx’s balance sheet is the strongest it has ever been. The company bought back 361,000 shares during the quarter at an average of $2.54.

Cooper said this level of balance sheet strength should give CareRx flexibility to pursue acquisitions.

Beacon Securities sees multiple growth avenues ahead for CareRx. In Q2, the company added beds through existing client expansions, including Yorkville and Southbridge. Additional growth is expected from recent acquisitions by Chartwell and Sienna, with further M&A likely given strong occupancy and new home development, particularly in Ontario.

CareRx could also benefit from M&A as competitors lose beds and potentially sell their operations. The company continues to win business through RFPs, and management sees a strong pipeline, including a possible opportunity with Extendicare. While still early, Quebec remains a potential long-term market.

Cooper expects CareRx to generate $35.8-million in Adjusted EBITDA on $377.4-million in revenue in fiscal 2025.

With visible growth opportunities ahead, he raised his fiscal 2026 forecast to $409-million in revenue and $40.9-million in EBITDA, up from $400-million and $40-million. In the absence of any acquisitions, Cooper said that level of EBITDA could generate over $20-million in free cash flow, bringing net debt close to zero by the end of fiscal 2026.

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