Following a 2019 that saw the stock triple in value, PI Financial analyst David Kwan thinks WELL Health Technologies (WELL Health Technologies Stock Quote, Chart, TSX:WELL) has even more upside in 2020.
In a research report to clients Friday, Kwan reiterated his “Buy” rating on WELL, affirmed that is a “Top Pick” and raised his price target on the stock from $1.80 to $2.20.
Led by CEO Hamed Shahbazi, WELL this morning graduated to the TSX from the TSXV and celebrated by ringing the opening bell at the Toronto Stock Exchange.
“After its share price more than tripled last year, we still believe there is solid upside aided by an active consolidation strategy in the still very fragmented healthcare sector,” Kwan said.
Kwan said the upstart healthcare technology company already has a large, stable base of revenue.
“~90% of WELL’s revenue are recurring (digital services) or stable insured clinical services revenue, providing the Company with a solid base of predictable revenue, regardless of the economic cycle,” he said. “As well, there is also some good organic growth opportunities built into the business model.
After a busy year on the M&A front, Kwan said 2020 will be another year of growth by acquisition for WELL Health.
“2019 was a busy year on the acquisition front for WELL, as it completed the acquisitions of four OSCAR vendors with another one announced. In the clinical business, WELL acquired SleepWorks and Spring Medical Clinic,” he said. “We expect the Company to maintain its active acquisition pace in 2020. In the digital services business, there are still a few more OSCAR vendors (of size) that we believe are high up on the priority list while WELL could also look to bring in other healthcare technologies into the fold, like telemedicine/telehealth. WELL is also looking to expand its primary clinic footprint, with a focus on B.C. and expansion into Ontario in particular.”
Kwan thinks WELL will post Adjusted EBITDA of negative $1.9-million on revenue of $32.1-million in fiscal 2019. He expects those numbers will improve to EBITDA of positive $900,000 on a topline of $51.1-million the following year.
“WELL is trading at 3.6x EV/Sales (CY20e) compared to its key healthcare services peers at 3.3x and key healthcare technology peers at 4.7x,” the analyst noted. “We believe WELL should trade at a premium valuation given its vastly superior growth profile, solid balance sheet, and strong management team. We are reiterating our BUY recommendation, increasing our target to $2.20/sh (was $1.80/sh), and maintaining our SPECULATIVE risk rating. Our target price is based on 5.0x our FY21 (was 4.5x our FY20) digital services revenue estimate and 4.0x our FY21 (was 3.5x our FY20) clinic revenue estimate.”
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