Long-term care pharmacy service provider CareRx Corporation (TSX:CRRX) has managed to withstand the macro challenges facing its business, according to analysts at Leede Jones Gable.
The company posted a significant jump in its third-quarter revenue, which was driven by acquisitions and organic growth from new contracts.
For the three months ended September 30, 2022, the company reported revenue of $97.4 million, up 37% from the $71.3 million reported in the year-ago quarter, which Leede Jones Gable considered “solid,” if sequentially soft.
READ: CareRx reports 37% 3Q revenue jump driven by acquisitions and organic growth
“The modest sequential EBITDA decline in (3Q 2022) was entirely expected and indeed predicted by CareRx in its FQ222 conference call commentary based on labor costs and inflationary headwinds that were apparent at the time and have been sustained into FH222,” analysts wrote.
The company’s growth into Atlantic Canada should add 600 new beds in 2023, once new fulfillment center infrastructure is established in the region, analysts highlighted.
The analysts also expressed optimism in the province of Ontario’s will to ensure stable funding for the long-term care pharmaceutical (LTC Rx) industry.
“We are encouraged by the fact that the Ontario government continues to postpone its scheduled scale-down of annual dispensation fees to LTC Rx services providers, though that scale-down is still expected to transpire in future years instead of in 2021/22 as originally planned,” analysts wrote.
Strong EBITDA despite cost headwinds
CareRx’s EBITDA margin was “encouragingly strong” in the face of cost headwinds that retrospectively includes price compression on generic drug reimbursement in Ontario.
“Layered onto this margin compression is the Ontario government’s previous imposition of a 15%-18% reduction in generic drug reimbursement for about seventy generic drug formulations commonly prescribed to elderly patients to manage chronic symptoms,” analysts noted. “This is already factored into our F2023 financial forecasts.”
Analysts at Leede Jones Gable expect CareRx to focus more on stabilizing existing operations in 2023 than on acquisitive growth, after being historically aggressive on such transactions last year.
“There were no major macro initiatives at play in CareRx’s FQ322 financial data, and with EBITDA margin softness largely expected based on all of the cost escalation, inflationary pressures and labor shortages that we are seeing across the entire healthcare services sector, we consider FQ322 to have been in line with expectations and our forecasts in general,” analysts wrote.
“The firm is clearly now established as the national leader by market share in the Canadian LTC Rx industry.”
Leede Jones Gable has a Buy rating on CareRx stock and a one-year price target of C$5.50.
Contact Angela at angela@proactiveinvestors.com
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