Investing in undervalued defensive stocks can help you derive outsized gains when the economy stages a turnaround. Generally, defensive companies are defined as ones with the ability to generate stable cash flows across business cycles.
Historically, companies part of the healthcare sector have been as defensive bets as consumers are unlikely to lower healthcare spending even during an economic recession. Here are two undervalued TSX healthcare stocks that have the potential to surge up to 100% according to consensus price target estimates.
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Is Neighbourly Pharmacy stock a good buy right now?
Neighbourly Pharmacy (TSX: NBLY) is Canada’s largest and fastest-growing network of community pharmacies. Valued at a market cap of $561 million, NBLY stock is down 69% from all-time highs, allowing you to buy the dip.
Neighbourly Pharmacy has expanded to 291 locations in Canada, and this acquisition-based model has allowed it to increase sales from $186.6 million in fiscal 2020 to $749 million in fiscal 2023 (ended in March). In the first quarter (Q1) of fiscal 2024, its sales were up 72% year over year at $196.8 million.
The healthcare company emphasized that 95% of top-line growth was driven by pharmacies acquired in the last 12 months, as same-store sales were up 4.1% in the June quarter. Its adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) grew 76.5% compared to the year-ago period to $19.9 million, and Neighbourly Pharmacy confirmed it closed two previously announced acquisitions in late June.
Neighbourly Pharmacy enjoys an economic moat as its network of pharmacies is typically located in underserved markets, resulting in lower competition. Additionally, there are over 6,500 independently owned pharmacies in Canada, which suggests there is enough room to drive top-line growth in the upcoming decade.
Analysts tracking NBLY stock expect its sales to rise by 22.6% to $919 million in fiscal 2024 and by 15.3% to $1.06 billion in fiscal 2025. Comparatively, its adjusted earnings are forecast to rise from $0.46 in 2023 to $0.53 in 2024 and $0.78 in 2025.
So, priced at 0.6. times forward sales and 24 times forward earnings, NBLY stock is quite cheap, given its growth estimates. Due to its consistent earnings, NBLY also pays shareholders a quarterly dividend of $0.045 per share, indicating a yield of 1.4%.
NBLY stock has a consensus price target estimate of $24.89, which is 98% above its current trading price.
What is the price target for Dentalcorp stock?
Dentalcorp (TSX: DNTL) acquires and partners with dental practices to provide healthcare services in the country. Its revenue in Q2 surged 12.6% to $368.3 million, while same-practice revenue growth stood at 5.5%. It ended Q2 with an adjusted EBITDA of $67 million, indicating a healthy margin of 18.2%.
Dentalcorp is valued at a market cap of $1.10 billion and is among the fastest-growing networks of dental practices in North America. Similar to several other companies, Dentalcorp is focused on improving its balance sheet and profit margins amid a challenging macro backdrop.
It reduced balance sheet debt for the second consecutive quarter in Q2 and is forecast to swing to an earnings per share of $0.14 in 2023, compared to a loss per share of $0.12 in 2022. Analysts tracking DNTL stock remain bullish and expect shares to surge by 128% in the next 12 months.
