Concordia Healthcare (CXR.TO)
It is hard to believe that Concordia is trading at the levels we see today given what the business has transformed into over the past couple of years. Since becoming a public company, Concordia has effectively broadened both its product platform and geographic footprint, generating significant earnings growth in the process. For example, the consensus expectation for 2016 EBITDA is $860-million, roughly 11x higher than its 2014 EBITDA of $78-million. The acquisitions executed to achieve this growth have resulted in a large debt load, but it is manageable, in our view, given the high-margin nature of the business. Leverage aside, this is a healthy, diversified business run by smart management that produces a considerable amount of free cash flow. Even assigning Concordia a conservative valuation multiple to account for the debt load, our internal EPS projection highlights the shares as 50-per-cent undervalued. At 4x 2016 EPS, CXR is trading at a multiple reserved for companies going out of business, which is certainly not the case. We wil not see these low prices again.