On March 5, 2025, Leede Financial Inc. analyst Dr. Douglas Loe raised his target price for CareRX Corp. (CRRX:TSX; CHHHF:OTCMKTS) from CA$4.25 to CA$4.75 while maintaining a Buy rating, citing sequential stability in the company's revenue and EBITDA performance, along with significantly improved debt ratios that have effectively eliminated financial risk from the company's business profile.
CareRx reported FQ424 (December-end quarter) financial results showing continued stability in its long-term care (LTC) pharmacy services business. The company generated revenue of CA$92.2 million, EBITDA of CA$7.56 million, and an EBITDA margin of 8.2%, compared to CA$92.8 million, CA$7.78 million, and 8.4% in FQ324, and CA$91.1 million, CA$7.50 million, and 8.2% in FQ423. This consistency demonstrates the company's ability to maintain stable financial performance despite a modest reduction in its bed count.
The company ended FQ424 with 87,124 beds under management, down from 89,099 in FQ324 and 91,465 in FQ423. However, revenue per bed has increased to CA$4,206 annualized in FQ424 from CA$4,168 in the previous quarter and CA$3,984 in FQ423. Management expects to reverse the downward trend in beds served, projecting the addition of approximately 3,000 new beds during the first half of 2025.
CareRx generated a strong operating cash flow of CA$7.3 million (CA$0.12/share) in FQ424, enabling the company to fund its capital expenditures while significantly reducing long-term debt. Over the full year 2024, the company generated an operating cash flow of CA$29.0 million (CA$0.48/share) and reduced its debt by CA$15.7 million, bringing quarter-end debt down to CA$45.3 million.
The company's debt-based financial ratios have improved substantially, with a debt-to-EBITDA run-rate ratio of 1.5x and an EBITDA-to-interest coverage ratio of 4.1x, both well below the 3x threshold that would typically be considered cautionary for healthcare services firms.
Dr. Loe shifted the reference year in his valuation methodology from F2025 to F2026, projecting EBITDA of CA$31.1 million in F2025 (2.7% growth) increasing to CA$32.7 million in F2026 (5.1% growth). His valuation applies a 10x EV/EBITDA multiple to F2026 EBITDA, which yields a target price of CA$4.75, representing a 78.6% potential return from the current share price of CA$2.66.
The main risk identified is the potential implementation of professional fee reductions by the Ontario Ministry of Health, which has been delayed annually since January 2020. While implementation is expected to be delayed for at least another fiscal year, the possibility of scheduled reductions remains a concern for long-term forecasts.
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Disclosures for Leede Financial Inc., CareRX Corp., March 5, 2025
Disclosures None Important Information and Legal Disclaimers Leede Financial Inc. (Leede) is a member of the Canadian Investment Regulatory Organization (CIRO) and a member of the Canadian Investor Protection Fund (CIPF). This document is not an offer to buy or sell or a solicitation of an offer to buy or sell any security or instrument or to participate in any particular investing strategy. Data from various sources were used in the preparation of these documents; the information is believed but in no way warranted to be reliable, accurate and appropriate. All information is as of the date of publication and is subject to change without notice. Any opinions or recommendations expressed herein do not necessarily reflect those of Leede. Leede cannot accept any trading instructions via e-mail as the timely receipt of e-mail messages, or their integrity over the Internet, cannot be guaranteed. Dividend yields change as stock prices change, and companies may change or cancel dividend payments in the future. All securities involve varying amounts of risk, and their values will fluctuate, and the fluctuation of foreign currency exchange rates will also impact your investment returns if measured in Canadian Dollars. Past performance does not guarantee future returns, investments may increase or decrease in value, and you may lose money. Leede employees may buy and sell shares of the companies that are recommended for their own accounts and for the accounts of other clients. Disclosure codes are used in accordance with Policy 3600 of CIRO. Description of Disclosure Codes 1. Leede and its affiliates collectively beneficially own 1% or more of any class of equity securities of the company as of the end of the preceding month or the month prior to the preceding month if the report was issued prior to the 10th. 2. The analyst or any associate of the analyst responsible for the report or public comment hold shares or is short any of the company's securities directly or through derivatives. 3. Leede or a director or officer of Leede or any analyst provided services to the company for remuneration other than normal investment advisory or trade execution services within the preceding 12 months. 4. Leede provided investment banking services for the company during the 12 months preceding the publication of the research report. 5. Leede expects to receive or intends to seek compensation for investment banking services in the next three months. 6. The analyst preparing the report received compensation based upon Leede investment banking revenues for this issuer within the preceding 12 months. 7. The director, officer, employee, or research analyst is an officer, director or employee of the company, or serves in an advisory capacity to the company. 8. Leede acts as a market maker of the company. 9. 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Leede Financial Inc. (Leede) compensates its research analysts from a variety of sources and research analysts may or may not receive compensation based upon Leede investment banking revenue. Canadian Disclosures This research has been approved by Leede Financial Inc. (Leede), which accepts sole responsibility for this research and its dissemination in Canada. Leede is registered and regulated by the Canadian Investment Regulatory Organization (CIRO) and is a member of the Canadian Investor Protection Fund (CIPF). Canadian clients wishing to effect transactions in any designated investment discussed should do so through a Leede Registered Representative. U.S. Disclosures This research report was prepared by Leede Financial Inc. (Leede). Leede is registered and regulated by the Canadian Investment Regulatory Organization (CIRO) and is a member of the Canadian Investor Protection Fund (CIPF). This report does not constitute an offer to sell or the solicitation of an offer to buy any of the securities discussed herein. Leede is not registered as a broker-dealer in the United States and is not subject to U.S. rules regarding the preparation of research reports and the independence of research analysts. Any resulting transactions should be effected through a U.S. broker-dealer.
