It’s been a long way down for Canadian pharmacy services provider CareRx Corp (CareRx Corp Stock Quote, Charts, News, Analysts, Financials TSX:CRRX) over the past couple of years, where shares have fallen over 60 per cent. But the prescription is for better days ahead, according to Desjardins Capital Markets analyst Gary Ho, who provided an update to clients on Monday where he reiterated a “Buy” rating and $4.00 target price, good for a projected return at the time of publication of 78 per cent.
Toronto-based CareRx provides pharmacy services to seniors living communities across Canada, with over 94,000 residents currently served at over 1,600 communities, including long-term care homes, retirement homes and assisted living facilities.
Ho said CareRx treated sell-side representatives to a plant tour at its 37,000 sq ft fulfillment centre in Oakville, Ontario, the largest of the company’s 28 locations and home to its new BD Rowa Dose medication packaging system, the first of its kind in Canada.
Ho said the Oakville centre currently serves 14,500 beds with a potential to increase to 22,000-25,000 over time, with clients in the Niagara Region and over to Peterborough to the east and Aurora and Newmarket to the north.
Ho said management is aiming to move to a spoke-and-hub model where bulk weekly drug subscription batches are packaged through mega-facilities, leaving regional hubs to cater to ad hoc and more urgent requests as well as compounding.
“We came away with a slightly positive view,” Ho wrote. “(1) The new CEO remains focused on driving margin improvement, not just bed count growth; (2) walking through the facilities, we saw many opportunities for digitization and automation to drive further operational efficiencies; (3) the move to a spoke-and- hub model could help alleviate labour issues; (4) we believe rolling out mega-facilities to larger cities makes a lot of sense; (5) however, some of these initiatives will take time to realize given seniors/LTC homes’ resistance to change.”
Earlier this month, CareRx reported its first quarter financials, coming in with revenue down two per cent year-over-year to $93.2 million and adjusted EBITDA down by 21 per cent to $6.8 million. The company said although the quarterly numbers were in-line with management’s expectations, a still-challenging labour market in the pharmacy sector impacted its bottom line.