Canaccord Genuity (TSX:CF, LSE:CF) analysts have reiterated their ‘Buy’ rating for CareRx Corporation (TSX:CRRX) but reduced their price target after the Canadian healthcare company raised equity financing.
CareRx announced on January 18 it completed a bought deal offering and closed the first tranche of a concurrent private placement for aggregate gross proceeds of around $12.1 million.
Closing of a second tranche of the private placement for an additional $4 million of gross proceeds is expected to occur on or before February 28, 2023.
READ: CareRx closes $12.1 million financing to boost treasury
In a note to clients, the Canaccord analysts wrote that CareRx plans to put $10 million of the net proceeds towards debt reduction and the balance toward capital and other general corporate expenses, noting that interest on the company’s debt has weighed on FCF (free cash flow) generation.
“Although we view the potential for debt paydown favorably, in the near term, the offering has a dilutive effect on our PT (price target),” they wrote. “Continuing to value the stock at 10x our 2023 adjusted EBITDA estimate of $34.6M results in our PT declining to C$5.00 (from C$5.25). Still, with an implied ~90% of potential upside from current levels, we reiterate our BUY rating.”
CareRX’s Toronto-listed shares are currently trading at C$2.59.
Contact the author at stephen.gunnion@proactiveinvestors.com