Stifel Canada raises target on WELL Health to $2.60

Increasing conviction with regards to the company’s business plan has Stifel Canada analyst Justin Keywood raising his price target once again on WELL Health Technologies (WELL Health Technologies Stock Quote, Chart, News TSX:WELL).

On Friday, WELL Health graduated to the Toronto Stock Exchange from the Venture Exchange, and rang the opening bell.

“It’s truly an honour to be ringing the opening bell at the TSX,” said CEO Hamed Shahbazi. “Migrating to the TSX is a significant milestone in the company’s history and recognition of Well’s rapid accent to becoming a leading provider of primary health care services and electronic medical records (EMR) software in Canada. We believe that there are many benefits to Well’s stakeholders as a result of this graduation.”

Keywood, who launched coverage of WELL last May with a $1.00 price target said he confidence in the company has continued to increase. The analyst today maintained his “Buy” rating on the stock while raising his price target from $2.35 to $2.60, a figure that implied a return of 41.3 per cent at the time of publication.

“We recently spoke to members of WELL’s team and have increasing conviction that the company will continue to acquire valuable assets in the healthcare and technology area, supporting high growth forecasts,” he said. “WELL is evaluating over 100 assets with about 10 in late stages and has already acquired 10 assets since 2018. WELL’s business model is unique with ~20 family doctor clinics and a ~15% EMR market share, along with other strategic investments that provide for a solid foundational platform to leverage new growth. Over 600k patient visits per year provides a testing ground as well to develop new technologies that is a competitive advantage. We expect WELL to continue an aggressive M&A plan that supports high growth forecasts and roll forward our target period to F2021, resulting in a $2.60 target. The increased target also reflects our greater conviction in WELL’s management team to continue disciplined execution on value creating assets.”

Keywood thinks WELL will post EBITDA of negative $1.9-million on revenue of $31.7-million in fiscal 2019. He expects those numbers will improve to EBITDA of positive $2.4-million on a topline of $43.3-million the following year.

The Stifel Canada analyst tackled the issue of how to value WELL.

“We believe that WELL will continue to be aggressively growth focused in expanding its health-tech platform with a solid team and track record to support this pursuit. As a result, we look at other successful serial acquirers and unique business models in fragmented industries for what is an appropriate trading multiple. We conclude that 6x sales is reasonable for WELL with the growth profile ahead (~100% 2-year CAGR), which also de-risks the potential for a valuation reset to a certain extent. Our $2.60 target is based on 6x F2021 sales vs. F2020 prior ($2.35 target). We see rapid growth through M&A as driving our thesis.”

Disclaimer: Nick Waddell and Jayson MacLean of Cantech own shares of WELL Health and the company is an annual sponsor of the website.