Like pulling teeth from this guy, not to mention that his target has already been exceeded. GLTA
Neighbourly Pharmacy Inc. is “gradually working through labour headwinds,” according to National Bank Financial analyst Zachary Evershed.
Following Tuesday’s release of better-than-expected second-quarter 2023 results, which send its shares soaring 9.7 per cent, Mr. Evershed raised his earnings expectations through 2025, emphasizing on the cost savings brought from its focus on hiring and calling its aggressive M&A strategy “unwavering.”
“Compounding the lift from the higher-margin Rubicon acquisition, NBLY’s profitability outperformance in the quarter was driven by better-than-expected labour availability as measures to attract pharmacists proved successful, lowering vacancies by 25 per cent,” said Mr. Evershe. “We raise our margin estimates in H2/23 and into FY2024 to reflect progress on the labour front, though we continue to expect a full recovery only in the summer with the next graduating cohort of pharmacists.”
“Despite the rising rate environment, management’s strategy remains unchanged and the previously communicated pace of 35-40 new locations acquired annually is expected to continue. The company’s pipeline remains robust, supported by retirements, and independents tapping the brakes on their own acquisition programs. Despite these tailwinds, management indicates it is unlikely NBLY would materially exceed guidance on this front given the company’s strict criteria and smaller overall size of remaining targets.”
For the quarter, Neighbourly reported revenue of $178.9-million, up 97.3 per cent year-over-year and marginally higher than the analyst’s $178.6-million estimate. Adjusted earnings per share rose 37.6 per cent to 12 cents, beating Mr. Evershed’s projection by 2 cents.
“Better-than-anticipated traction on talent acquisition has us modeling sequential margin improvement in FY2023, but we still do not expect a full recovery until the summer, when the next cohort of graduating pharmacists joins the workforce in July and early August to help balance supply with demand for labour in the industry,” he said.
“Despite management’s constructive tone on the M&A pipeline, we maintain our assumption of 8 new locations acquired per quarter, slightly below guidance for 35-40 annually, as the pace of acquisitions in our model is limited by the balance sheet. We also note that even if FCF generation outpaced our expectations or the company availed itself of additional financing, management stated NBLY was unlikely to materially exceed the pace of guidance as they intended to remain disciplined on their strict criteria, and the remaining takeout candidates fall off quickly in size after Rubicon, comprised of independents and small networks in the 10-30 location bucket.”
Maintaining a “sector perform” rating, seeing its valuation as “full” and leverage remaining “elevated,” Mr. Evershed raised his Street-low target for its shares to $22 from $20. The average is $29.50.