WELL Health gets street-high $2.75 target at Echelon Wealth

Look for WELL Health Technologies (WELL Health Technologies Stock Quote, Chart, News TSX:WELL) to capitalize on the sudden —and likely sustained— interest in telemedicine, says Rob Goff, analyst for Echelon Wealth Partners, who on Sunday launched coverage of WELL with a “Speculative Buy” rating and $2.75 target price.

Founded in 2010 and launched as a public company in January, 2019, WELL Health owns and operates primary healthcare clinics, has an electronic medical records (EMR) business and a telehealth platform.

In his coverage initiation, Goff said WELL has moved aggressively with accretive and on-strategy acquisitions to gain scale in the health clinic market and in the EMR space.

The latter was on display on Monday, as WELL announced the purchase of MedBASE Software, which supplies OSCAR EMR services to 61 medical clinics in Ontario. The $650,000 purchase lifts WELL’s EMR footprint to supporting over 1,500 primary clinics across Canada.

Goff said he considers WELL’s clinics a source of baseline cash flow with an attractive upside and as a strong and appreciating asset class, pointing to One Medical in the US which has built a network of 72 clinics and supports a strategy similar to WELL.

As far as WELL’s telehealth business goes —the company last month launched its VirtualClinic+ platform— Goff said it only adds to the mix for WELL.

“The significant opportunity in owning clinics reflects the potential to move typical clinics with four or five doctors to eight or ten with the use of telehealth services and without adding additional support costs. These additional physicians contribute incremental in clinic revenues in addition to their prospective contribution of out of clinic, telehealth revenues,” Goff said.

“We believe they represent significantly greater value relative to private market valuations where they represent the hub about which the Company extends outward with its digital services encompassing a broad range of personal health services. We see the bricks and clicks establishing a strong core as WELL is a national healthcare provider deploying both B2C and B2B distribution models,” he wrote.

As for catalysts for the stock go, Goff pointed to the company’s turning EBITDA-positive, which he said could be either in the fourth quarter of this year or, due to a greater ramp up in its telehealth business, could be pushed back a quarter or two.

Goff also pointed to further acquisitions and evidence of traction in its digital services as
primary catalysts.

“The performance of its US peers and continued M&A activity are expected to maintain high levels of attention to the space with a prevalence of high-water benchmark valuations,” Goff said.

The analyst is forecasting fiscal 2020 revenue and EBITDA of $40.7 million and negative $0.8 million, respectively, and fiscal 2021 revenue and EBITDA of $56.9 million and $2.7 million, respectively.

At press time, Goff’s $2.75 target represented a projected one-year return of 31.0 per cent.

“We believe the healthcare demands of an ageing population applied to a fragmented, resource-constrained healthcare ecosystem represent enduring support for WELL Health’s strategy as a vertically integrated health services provider,” Goff wrote.

Last week, WELL announced a Memorandum of Understanding with McMaster University’s Department of Family Medicine authorizing WELL to use the OSCAR brand in perpetuity. OSCAR, which stands for open-source clinical application resource, is an EMR system created by McMaster.

“By using the OSCAR brand, WELL affirms its commitment to the core brand principles of open collaboration, clinician-driven innovation and ethical data practices,” the company said in a statement.

Disclosure: Jayson MacLean and Nick Waddell own shares in WELL Health Technologies and the company is an annual sponsor of Cantech Letter.