Neighbourly Pharmacy (TSE: NBLY) operates a network of community pharmacies.
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The company announced on Tuesday that it received a “no-action letter” from the Competition Bureau allowing Neighbourly to continue with the acquisition of Rubicon Pharmacies.
Neighbourly is an active acquirer, acting as a consolidator of the industry. Rubicon Pharmacies matches Neighbourly’s criteria for acquisition targets very well, as it is considered a center of healthcare delivery in small and underserved communities.
The acquisition will cost Neighbourly C$435 million. However, it will add 100 locations to Neighbourly’s portfolio in key Western Canadian provinces, bringing the total number of locations to 271, an increase of 58%. In addition, it is expected to add C$41 million to Neighbourly’s pro forma adjusted EBITDA. This is a material acquisition for a company with an C$850 million market cap.
Analyst Recommendations
Neighbourly Pharmacy has a Moderate Buy consensus rating, based on four Buys and two Holds assigned in the past three months. The average Neighbourly Pharmacy price target of C$38.75 implies 56.6% upside potential.
Analyst price targets range from a low of C$35 per share to a high of C$42 per share. Interestingly, the highest price target comes from top-rated analyst Irene Nattel, who reiterated her Buy rating only nine days ago. Irene’s C$42 price target equates to a potential upside of 69.8%, thus, expecting the stock to make new all-time highs.
Final Thoughts
The pharmacy industry in Canada is very fragmented. Neighbourly views this fragmentation as a growth opportunity by acting as the industry consolidator.
Indeed, Neighbourly’s acquisition of Rubicon will significantly increase its network of pharmacies by 58%. In return for the C$435 million price tag, pro forma adjusted EBITDA is expected to increase by C$41 million.
As a result, analysts have a favorable view of the company, as they believe that the stock is currently undervalued.