Why Did Concordia Healthcare Corp. Spike 25%?

Find out why Concordia Healthcare Corp. (TSX:CXR)(NASDAQ:CXRX) should head even higher.

| More on:
The Motley Fool

Concordia Healthcare Corp. (TSX:CXR)(NASDAQ:CXRX) has been more volatile than the common stock. From a high of over $100 in mid-2015, it fell to about $31 on Wednesday. Then, around midday on Thursday, it spiked 25%!

What caused the spike?

Blackstone Group LP (NYSE:BX) is considering taking over Concordia. For those of you who don’t know about Blackstone, it’s a global alternative asset manager that invests for the long term.

In its annual chairman letter for 2015, it stated, “[Blackstone’s] differentiating strengths [include] the ability to invest at scale, analyze complex situations, commit capital quickly, and provide innovative solutions.” This allows it to invest for favourable risk-adjusted returns and to ultimately deliver above-average, long-term returns.

The fact that Blackstone is interested in Concordia means that it finds significant value in Concordia and that the risk-adjusted returns are favourable.

The buyout discussion is still in its early stages. So, it may or may not happen. However, there’s no argument that Concordia is trading too cheaply.

Value proposition in Concordia

Even after rising 25% (and trading was halted by IIROC in the process), Concordia is still only trading at about 6.1 times its earnings, though it’s expected to experience double-digit growth in the next two years.

Last year Concordia experienced superb growth. It generated sales of US$394.2 million, which was 276% higher than 2014. Concordia’s amazing growth was attributable to its 2015 acquisitions of Covis in April and Amdipharm Mercury Limited (AMCo) in October.

They contributed 32% and 29% of total sales, respectively. And those were only partial-year contributions. This year will mark their full-year contributions, which should contribute to even higher revenues.


The main concern with Concordia is the debt it took on to complete the Covis and AMCo acquisitions. The first acquisition cost US$1.2 billion, and the second cost US$3.1 billion. As a result, in Concordia’s 2015 annual report, it reported having US$3.32 billion of long-term debt.

In fact, Concordia’s biggest expense item in 2015 was its interest and accretion of US$127.8 million, which accounted for 36% of the year’s expenses. Excluding the US$57.2 million of acquisitions, restructuring costs, and other one-time expenses, its interest and accretion expenses would have accounted for an even higher percentage of its annual expenses–43% to be exact.


In the next couple of years, as Concordia continues to digest its acquisitions and lower its debt levels, and as it continues its double-digit growth trajectory, the shares could experience a multiple expansion from 6.1 times its earnings to 10 times its earnings.

So, shares could trade at US$75 on the NASDAQ and $100 on the TSX for about 145% upside in two years.

Concordia Healthcare is a strong candidate for a “double down” stock for risk-adverse investors.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Kay Ng owns shares of CONCORDIA HEALTHCARE CORP.

More on Dividend Stocks

A steel grain silo storage tank with solar panel in a yellow canola field in bloom in Alberta, Canada.
Dividend Stocks

Down by 26.77%: Now Might Be the Perfect Time to Buy Nutrien Stock

This TSX stock has seen share prices fall by over 26% from its 52-week highs, but it might be the…

Read more »

Woman has an idea
Dividend Stocks

2 No-Brainer Stocks to Buy Now With $7,000

Two relatively cheap cash cows are no-brainer buys for investors with $7,000 to invest.

Read more »

dividends grow over time
Dividend Stocks

Buy This High-Yield Dividend Stock in July 2024

Buy this high-yielding dividend stock to lock in inflated yield into your portfolio to generate solid passive income for years.

Read more »

Double exposure of a businessman and stairs - Business Success Concept
Dividend Stocks

Where Will Dollarama Stock Be in 3 Years?

Dollarama stock has done incredibly well during economic uncertainty, but what about when the markets recover in the next three…

Read more »

Piggy bank with word TFSA for tax-free savings accounts.
Dividend Stocks

TFSA – 2 Canadian Stocks to Buy and Hold for Tax-Free Gains

Canadian stocks like Brookfield Corp (TSX:BN) can make wise TFSA holdings.

Read more »

Doctor talking to a patient in the corridor of a hospital.
Dividend Stocks

3 Things You Need to Know if You Buy NorthWest REIT Today

This REIT holds a super high dividend yield at 7.2%, but before you invest here is exactly what investors need…

Read more »

Blocks conceptualizing Canada's Tax Free Savings Account
Dividend Stocks

How to Turn Your TFSA Into a Gold Mine Starting With $10,000

High-yield dividend stocks can turn a $10K investment in a TFSA into a gold mine over time.

Read more »

money cash dividends
Dividend Stocks

Buy 6,250 Shares of This Top Dividend Stock for $250/Month in Passive Income

Beyond its reliable monthly passive-income streams, iShares Canadian Financial Monthly Income ETF (TSX:FIE) is on course to double investors' capital

Read more »