The stock has already doubled in 2020 but Stifel GMP analyst Justin Keywood says there’s more upside coming for WELL Health Technologies (WELL Health Technologies Stock Quote, Chart, News TSX:WELL).
In an update to clients Thursday, Keywood raised his target on what he described as increased conviction, arguing that further M&A will serve as a catalyst for the stock.
WELL Health is a healthcare clinics owner/operator with 20 clinics in Canada, along with the country’s third-largest electronic medical records business and a national telehealth platform.
Keywood says he recently held virtual investor meetings with WELL’s management and came away a stronger believer in the name.
“We believe that WELL will continue an aggressive but disciplined M&A plan for health-tech assets, a strategy that has become more valuable with changes in Telehealth billing codes but also in how we access healthcare,” Keywood said.
“WELL has ~$24 million in cash to deploy, and we see acquisitions as catalysts for the stock that highlight a compelling ecosystem of healthcare offerings with synergy implications. We also believe that solid year-over-year growth already accounted for reduces the risk for a valuation reset to a certain degree. As a result, we raise our target to $4.00,” he said.
Vancouver-based WELL last delivered quarterly earnings on May 15 where its first quarter 2020 featured revenue up 38 per cent year-over-year to $10.2 million and an adjusted EBITDA loss of $246,000.
At the time of the Q2 release, WELL’s VirtualClinic+, launched in early March, had registered over 800 healthcare practitioners and had surpassed 1,000 virtual booked appointments per day, while the company’s clinics continued to remain open throughout the COVID-19 pandemic. Keywood reported that now about 600 practitioners outside of WELL’s clinics are using VirtualClinic+.
On the M&A front, Keywood commented on WELL’s latest purchase, cybersecurity asset Cycura for $2.55 million, saying that WELL can resell revamped cyber security and data protection offerings to clinics, which typically have limited protection.
With the update, Keywood reiterated his “Buy” recommendation with the new target of $4.00, which at press time represented a projected 12-month return of 29 per cent.
On the valuation, Keywood wrote, “We see WELL as consolidating a valuable fragmented industry in healthcare and technology with good management and track record to support this pursuit.”
“Good serial consolidators, such as Enghouse (ESL), Descartes (DSG) and Constellation Software (CSU) trade at higher multiples at an average of 6x-7x sales with a high end range of 9x-10x sales historically. Although these companies are much larger than WELL, we believe a similar valuation case can be made for the early stage growth profile and opportunity ahead,” Keywood wrote.
“WELL tripled its business in 2019 with high growth continuing in 2020 and beyond. This de-risks the potential for a reset in valuation on results to a certain extent but also highlights multiple expansion on the rapid recurring revenue growth,” Keywood wrote. Keywood is forecasting 2020 revenue and EBITDA of $42.7 million and negative $0.6 million, respectively, and 2021 revenue and EBITDA of $52.4 million and $4.8 million, respectively.
Disclaimer: Nick Waddell and Jayson MacLean own shares in WELL and the company is an annual sponsor of Cantech Letter.