Investing.com -- Redcare Pharmacy (ETR:RDC) saw its stock surge by over 13% on Tuesday, following its earnings report and an optimistic outlook for fiscal year 2025.
Analysts at Jefferies highlighted the company’s intensified marketing efforts in the prescription (Rx) segment, which boosted top-line growth, albeit at the cost of slightly lower profitability for FY24.
However, Jefferies noted that Redcare’s FY25 guidance was a "clear positive surprise," with adjusted EBITDA projected to be 9% ahead of consensus estimates at the midpoint.
Despite a dip in Q4 margins due to the company’s aggressive marketing push, the overall outlook remains strong.
The gross profit margin declined by 50 basis points year-over-year to 22.3% in Q4, while adjusted EBITDA came in at €-4.9 million—falling €5 million short of Visible Alpha consensus expectations of €0.2 million.
The company’s EBITDA margin also showed a contraction of 270 basis points quarter-over-quarter, aligning with Jefferies’ expectations given the substantial investment in marketing activities to drive Rx sales.
A key driver of Redcare’s performance has been its strategic focus on eRx, which fueled an impressive 142% year-over-year increase in German Rx sales, reaching €97 million in Q4.
This growth nearly pushed the company past the €100 million milestone for the first time. The company’s Rx market share in Germany reached 0.82% in the first two months of FY25.
Meanwhile, non-Rx sales also posted a solid 20% year-over-year increase to €325 million, supported by spillover effects from Redcare’s heightened marketing initiatives.
Redcare expects total sales to exceed €3 billion in FY25, surpassing the consensus estimate of €2.95 billion. German Rx sales are projected to double, surpassing €500 million, while non-Rx sales growth is anticipated to exceed 18%.
The adjusted EBITDA margin forecast of 2-2.5% is particularly notable, as Jefferies emphasized that it is "much better than the market had feared in recent weeks."
This guidance signals that Redcare can maintain profitable growth despite its aggressive push in marketing.
Jefferies analysts also pointed out that Redcare’s strategic expansion has positioned it as the number one online pharmacy in five out of its seven country markets, including its recent leadership in the Italian online pharmaceutical market, valued at €1 billion.
The company’s active customer base has expanded to 12.5 million, up by 1.65 million year-over-year, further supporting its revenue momentum.
Redcare’s financial position remains strong, with operating cash flow at €22 million for FY24 and a cash reserve of €178 million, providing ample flexibility for future growth investments.
Despite the short-term margin contraction in Q4, Jefferies remains optimistic about the company’s trajectory, maintaining a "buy" rating with a price target of €170—implying a potential upside of 39% from its last closing price of €122.
The company’s strong Q1 performance, aided by seasonal factors such as flu-related sales and continued Rx growth, could mark what Jefferies termed a "clearing event" for Redcare.