Recent share price appreciation has prompted Haywood Securities analyst Daniel Rosenberg to change his rating from “Buy” to “Hold” on Well Health Technologies (Well Health Technologies News, Stock Quote, Chart TSXV:WELL) while at the same time increasing his target price from $1.10 to $1.70 per share.
A Bloomberg article issued at the beginning of July highlighting WELL and the substantial investment in the company by Sir Li Ka-Shing brought a boost to the stock and upped its trading volume, with WELL currently sitting up 280 per cent year-to-date.
Rosenberg says that while he continues to like the long-term outlook for the company, a pullback would represent a more attractive entry point.
“Management has executed on impressive growth utilizing disciplined M&A, and we continue to see a lengthy runway for further transactions. However, a recent surge in share price has left the stock ahead of fundamentals. Since a July 4th news publication, we have seen elevated trading volumes. We recognize a greater investor awareness around WELL relative to small-cap peers, and we have adjusted our valuation multiples to account for increased demand and impressive execution around M&A,” said Rosenberg in an update to clients on Wednesday.
The analyst notes Well Health’s announcement last week of its intention to acquire a majority stake (51 per cent) in SleepWorks Medical, which operates 22 clinics including all of WELL’s wholly owned 19 clinics, for a total consideration of $1.134 million along with the option to acquire the remaining 49 per cent. Rosenberg says that SleepWorks should be “nicely accretive” to WELL’s financials.
Rosenberg has slightly adjusted his estimates to account for the recent closing of the Kai Innovations acquisition, the SleepWorks acquisition and to better reflect the seasonality of summer months. He is now calling for calendar 2019 revenue and adjusted EBITDA of $33.1 million and negative $0.2 million (previously $32.7 million and negative $0.7 million) and calendar 2020 revenue and adjusted EBITDA of $43.9 million and $2.7 million (previously $42.2 million and $1.9 million).
The analyst’s $1.70 target represented a projected return of negative one per cent at the time of publication.
Disclosure: Cantech’s Nick Waddell and Jayson MacLean own shares of WELL Health and the company is an annual sponsor of Cantech Letter