Shares of CareRX Corp. (CRRX-T), formerly Centric Health Corp., surged on Tuesday after the company said it was buying SmartMeds Pharmacy Inc., a specialty pharmacy serving over 2,400 residents in long-term care and assisted living settings in Ontario for $4-million in cash and $475,000 of CareRx common shares.
Analysts and investors say the deal is one of many Toronto-based CareRX is expected to do in the months ahead to grab a greater share of the seniors’ pharmacy market.
The purchase price also includes an earn-out of up to an additional $2.9-million in cash payable after two years, based on it meeting certain targets, the company stated. The deal also includes a retail pharmacy in Burlington, Ont.
CareRx, which describes itself as Canada’s leading provider of specialty pharmacy services to seniors, said the deal is expected to be immediately accretive to its earnings and add revenue of approximately $13-million annually. The company already serves about 50,000 residents in more than 850 seniors and other communities, such as long-term care homes, retirement homes, assisted living facilities and group homes.
Beacon Securities analyst Doug Cooper, who has a “buy” rating and $9 target on the stock, described the deal as “significant” and said in a note that “it could be a model for future tuck-ins.”
Including the acquisition, he said the company’s current bed count is about 54,000, “with much more M&A and organic growth to be realized both in the near and longer-term.” He’s modelling for the company to reach a bed count of 64,000 by the end of this year.
“More such acquisitions with similar profiles as of today and/or others that can increase operating leverage would seem to imply upside to our margin forecast,” he wrote.
Shares of CareRX closed at $5.24 on Tuesday, up 24 per cent on the day. The stock has increased by about 35 per cent year-to-date and is up about 80 per cent over the past year. Still, the stock is down from its 52-week high of $6.20 on April 30.
Analysts say the stock has been under pressure due to some of the issues experienced with long-term care homes amid the pandemic.
The company changed its name from Centric Health to CareRX in June and consolidated its outstanding common shares at a ratio of 20 to 1.
Stifel analyst Justin Keywood, who has a “buy” and $8 target on the stock, said in a note that CareRX’s M&A pipeline “is as active as it’s ever been,” citing recent comments from company management.
Mr. Keywood said the company is poised to “eventually” increase its market share from 12 per cent today to more than 40 per cent through a mix of M&A and contract wins.
He also said the pandemic has had a “relatively muted impact” on the company’s number of beds under management, or about 1 per cent, “largely due to its exposure to higher quality long term care and retirement homes.”
He also noted that COVID-19 has “exposed underinvestment in long-term care across the country, which has led to several new funding support announcements and action by government.”
In an email to the Globe, Mr. Keywood said there could be an opportunity for CareRx to buy smaller competitors “that may have service challenges without the necessary scale to compete well.”
Stephen Takacsy, president and chief investment officer at Montreal-based Lester Asset Management Inc., owns CareRX stock in part because of its many M&A growth opportunities and the role he sees it playing in the rapidly growing telemedicine and virtual care segments of the health care industry.
It could also be a potential acquisition target down the road, he said in an email to the Globe.
Tax-loss selling in 2020 may have also depressed the stock price towards the end of last year, Mr. Takacsy said, “as well as it not being as ‘exciting; as the telehealth or cannabis stocks. However, ‘boring’ is better as CareRx has a real business that is growing and reasonably valued.”
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