Healthcare solutions provider rates a “buy”

Based in Oakville, Ont., Canadian healthcare stock Concordia Healthcare Corp. buys and manages legacy pharma products. It also buys and develops orphan drugs. Thanks to a recent acquisition, this healthcare stock now boasts a much bigger medicine chest.

Thanks to its recent US$1.2 billion purchase of Covis Pharmaceuticals, Concordia Healthcare Corp. (TSX─CXR) boasts 18 new products.

And that’s good news, says Beacon Securities analyst Doug Cooper, who notes that before the acquisition, more than half of Concordia’s portfolio was bound up in two drugs: Donnatal and Zonegran.

But for Mr. Cooper, the deal is also good news from a dollars-and-cents perspective.

Higher revenue and higher margins expected

Not only, he says, is Covis likely to give healthcare solutions provider Concordia $205 million in incremental revenue, but it’s likely to do so at very high margins.

Not surprisingly, he’s reiterating his “buy” rating for Concordia, as well as his 12-month price target of $117 a share. He writes:

Although Covis will give Concordia eight months of revenue and earnings, investors should focus on the consolidated entity’s revenue on a run-rate basis.

They should do the same with its EBITDA (earnings before interest, taxes, depreciation and amortization).

So, we’re continuing to peg this healthcare solutions company’s pro-forma revenue and EBITDA at $390 million and $282 million, respectively, Mr. Cooper says.

To pay for its acquisition, Concordia sold $368 million worth of shares at $85 each. It also floated $735 million in senior notes (seven per cent coupon maturing in 2023).

Concordia has a $700 million credit facility, of which it has likely drawn down $400 million.

Based on recent closing prices, Concordia trades at roughly 13.5 times our forecast of pro-forma EBITDA.

 

Investor’s Digest of Canada, MPL Communications Inc.
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