GoodRx Stock Gives Back Gain as Analysts Fret Over Problem With Grocer

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GoodRx

 stock briefly soared as investors welcomed news that the provider of pharmacy discount cards had resolved a problem with a large grocer, but analysts remain cautious and most of the gain evaporated by the close.

In May, GoodRx (ticker: GDRX) said a key grocer—analysts suggested it was Kroger (KR)—was renegotiating contracts with all pharmacy-benefit managers, or PBMs, on a subset of drugs. The result was that

GoodRx

wasn’t able to offer discounts at the grocery chain’s locations, which accounted for 25% of its transactions. It predicted a $30 million hit to its second-quarter revenue and the stock fell more than 25% on the news in mid-May.

But in its second-quarter earnings call on Tuesday morning, the company said that it expects GoodRx discounts to be consistently welcomed at the grocer.

“We just had a short period when some coupons weren’t working,” co-founder and co-CEO Doug Hirsch told Barron’s, declining to identify the grocer. Kroger didn’t respond to a request for comment.

Shares had soared as much as 34% to $10.37 in early trading Tuesday but the stock closed up only 0.6% at $7.81.

Things aren’t completely back on track with GoodRx. The company still isn’t providing a full-year financial forecast after it retracted guidance in May because it has less than a week’s worth of performance data under the normalized relationship with the grocer.

Its third-quarter outlook was also weaker than the consensus among analysts tracked by FactSet. For the quarter ending in September, the company said revenue will be roughly $185 million, lower than the $201.2 million expected. The problem with the use of its coupons hurt revenue more in the current quarter than in the second quarter, GoodRx said.

Management said adjusted earnings before interest, taxes, depreciation, and amortization will be 20% of revenue in the third quarter. According to FactSet, that Ebitda margin implies Ebitda of $37 million, also lower than estimates for $43 million.

Hirsch told Barron’s GoodRx will have a pretty good handle on what a recovery looks like in the coming months. “This hasn’t happened before in the company’s history,” he said.

Analysts remain downbeat about the stock.

J.P. Morgan analyst Doug Anmuth, who has a $10 price target, maintained his Underweight rating on the stock Tuesday, saying he is looking for the company to get back toward its former 40% margin profile.

Jonathan Yong of Credit Suisse increased his price target to $11 from $10 but maintained his Neutral rating. “While the return of the grocer is positive, there are other factors which could mute growth somewhat relative to historical norms,” Yong said, reminding investors that the company is trying to collect more data on its members, which is expected to pressure revenue.

Hirsch defended the decision to collect data. “We want to know more about the consumer; it’s going to allow us to do a better job with care,” he said. In addition to its discount card business segment, GoodRx also has a Pharma Manufacturer Solutions division that tells patients when it is time to refill their prescriptions.

Raymond James’ John Ransom has a Market Perform rating on the stock, saying the current agreement with the grocer appears more like a cease-fire than a permanent resolution. Besides, “we still think GDRX should have disclosed how important KR was to the whole shebang,” Ransom said.

Hirsch said the company chooses to keep the grocer’s name out of the public eye to protect its relationship. The issue “ignited a flame in us to build deeper relationships with pharmacies,” he said.

GoodRx doesn’t directly work with pharmacies but uses PBMs to manage those relationships. PBMs like OptumRx have contracts with pharmacies that specify what to charge when a customer supplies a GoodRx coupon. GoodRx takes a percentage of what the PBM makes from the customer’s payment to the pharmacist.

Write to Karishma Vanjani at [email protected]