Stifel initiates Custom Health with Buy, C$12 target

Source: Proactive

Analyst Initiation

Custom Health Holdings Inc (TSX: CHLT) has received a Buy rating from Stifel, with analysts setting a C$12 price target and noting potential upside as high as C$18 per share.

The investment thesis centers on the company's pill-dispensing platform, which addresses a major cost driver in U.S. healthcare: medication non-adherence.

The Problem and the Solution

Medication non-adherence costs the U.S. healthcare system approximately $0.5 trillion annually. Only about half of all prescriptions are taken as directed, leading to increased hospitalizations, emergency room visits, and disease progression.

Custom Health's full-stack system includes:

• Spencer – A home-based device that dispenses and monitors pills
• AdhereNet – An AI-powered platform
• Automated pharmacy network – Supporting the technology

Stifel reports that the system achieves a 98% adherence rate, significantly above industry norms.

Patient Base and Growth

Custom Health has more than 100,000 patients contracted through agreements with major U.S. health plans, including:

• Humana (NYSE: HUM)
• Elevance
• BlueCross BlueShield
• Commonwealth (pain management)
• BKC (pain management)

Stifel projects the company will nearly triple its active patient count next year, from approximately 6,000 to 17,000, supported by the recent acquisition of InnovativeRx. Revenue is expected to more than double.

Opioid Management and Regulatory Tailwinds

The platform supports physicians in safely weaning patients off opioid prescriptions, aligning with the NOPAIN Act, which took effect in January 2026 and enhances Medicare reimbursement for opioid-reduction efforts. Improved adherence also boosts Medicare Star ratings, leading to higher rebates and bonus payments for health plans.

Patient Demographics

The typical Custom Health patient is in their 50s or 60s and manages more than 10 chronic medications – a demographic expected to grow as the U.S. and Canadian populations continue to age.

Revenue and Margin Outlook

Stifel believes the InnovativeRx acquisition could drive 4x revenue growth over the next two to three years as Custom Health works through 30,000 of the 100,000 contracted patients. Additional acquisitions remain possible.

Key margin highlights:

• The Spencer device alone represents a ~$200 million recurring revenue opportunity at gross margins above 60%
• Combined with traditional pharmacy dispensing margins of approximately 20%, Stifel sees a path to EBITDA margins in the high teens – well above most pharmacy peers

Evergreen Pharmacy Acquisition

Custom Health has signed a binding letter of intent to acquire Evergreen Pharmacy LLC, based in Wisconsin. The deal is expected to add more than US$78 million in annual revenue.

Deal Terms

| Component | Amount | |-----------|--------| | Total purchase price | US$3.5 million | | Prescription drug inventory | At least US$1 million | | Net working capital | US$450,000 | | Cash on closing | Included | | Indemnity holdback (6 months) | US$175,000 |

Evergreen Pharmacy Overview

• Licensed in: Wisconsin, Illinois, Michigan (with expansion potential into Minnesota)
• Specializes in complex therapies across behavioral health, dermatology, gastroenterology, infectious disease, rheumatology, and neurology
• Financials (12 months ended December 31, 2025):
• Revenue: ~US$78.8 million
• Normalized EBITDA: US$0.6 million
• Reported positive net income in both fiscal 2025 and Q1 2026

Strategic Fit

The Evergreen acquisition aligns with the growth narrative outlined by Stifel: more patients on complex drug regimens, an expanded Midwest footprint, and another step toward the projected four-times revenue potential.