These are the top Canadian healthcare stocks, Stifel says

Stifel analyst Justin Keywood says Canada’s aging population and the government’s commitment of more than $50-billion in new healthcare investment this year are setting the stage for undervalued healthcare infrastructure plays to re-rate higher.

In a Sept. 18 report titled ‘Out With the New, In With the Old: Our Top Opportunities For Canadian Healthcare Infrastructure Plays in an Aging Marketplace,’ he highlighted CareRx (CareRx Corporation Stock Quote, Chart, News, Analysts, Financials TSX:CRRX), WELL Health Technologies (WELL Health Technologies Stock Quote, Chart, News, Analysts, Financials TSX:WELL), and K-Bro Linen (K-Bro Stock Quote, Chart, News, Analysts, Financials TSX:KBL) as prime beneficiaries.

Keywood upgraded CareRx to “Buy” from “Hold” and lifted his target to $4.50, saying the Ontario government’s plan to add or modernize 58,000 long-term care beds by 2028 meaningfully changes its growth profile.

“CareRx is a pure-play Canadian specialty pharmacy model servicing Canadian long-term care. While a sluggish topline in 2024 had kept the stock range-bound, we would argue that forward-looking growth expectations remain largely dismissed,” he said.

CareRx has averaged about $1,000 in revenue per bed since 2020, with each new bed typically adding $4,000 in annual revenue and $400 in EBITDA. A conservative 50% capture of incoming beds would value CareRx at roughly $4.10 per share, with upside beyond $5.00 on higher share gains, M&A, and organic wins.

Keywood said CareRx should generate $33-million in Adjusted EBITDA on $369-million in revenue in fiscal 2025, improving to $40-million on $402-million in fiscal 2026.

He also pointed to WELL Health’s scale, with more than 80 acquisitions creating a cross-border healthcare ecosystem. WELL holds the number-one market share for Canadian primary and specialty care clinics, a segment with secular tailwinds. Its Canadian clinic network generates $300-million in sales and $40-million in EBITDA, with a long runway for consolidation.

“We believe the Canadian clinic network value is not well reflected and as the business streamlines, including a divestiture and additional M&A, shares should re-rate,” he said.

On K-Bro Linen, he emphasized its exposure to hospitals and the benefit from Ontario’s $56-billion, decade-long plan to build 50 new hospital projects and add 3,000 hospital beds.

“K-Bro being the superior provider in the region will likely win the lion’s share of this business,” he said.

Shares trade at 7.5 times forward EV/EBITDA, a steep discount to global peers such as Cintas and Steris at 26.6 and 15.2 times, respectively. Renewal wins, M&A, and rising hospital volumes should act as catalysts.

Keywood framed all three stocks as overlooked infrastructure-like plays in a healthcare system under growing strain, with defensive attributes and catalysts to unlock valuation.

Disclosure: Nick Waddell owns shares of WELL Health and the company is an annual sponsor

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