WELL Health Technologies (WELL Health Technologies Stock Quote, Chart, News TSX:WELL) is uniquely positioned in one of the last industries to be disrupted, says Desjardins analyst David Newman, who launched coverage of the stock on Tuesday with a “Buy” rating and $3.90 target price.
Desjardins is the ninth firm to launch coverage of WELL Health since the firm got its start approximately three years ago.
Vancouver-based WELL Health is the operator of a network of primary healthcare clinics in BC (currently at 20 clinics) along with having the third-largest Electronic Medical Records (EMR) business in Canada and a telehealth platform.
The stock has done well since launching in January, 2019, gaining 280 per cent in 2019 and now another 95 per cent so far in 2020, but Newman thinks there’s more upside ahead for WELL.
“WELL continues to consolidate and modernize primary healthcare assets using digital technologies, which should lead to much-improved clinic economics and superior patient outcomes, thereby creating a disruptive flywheel of growth in a fragmented industry. The onset of COVID-19 has been a catalyst to accelerate the adoption of healthcare technology, with WELL at the forefront of disruption with its hybrid physical-virtual business model,” Newman wrote in his coverage initiation.
Newman listed four aspects to his bullish view on WELL: (1) the company’s leading position in an industry facing disruption; (2) organic growth opportunities in hybrid physical-virtual healthcare; (3) a deep M&A pipeline in clinic and digital acquisitions; and (4) a strong and experienced management team led by CEO Hamed Shahbazi, who previously nurtured payments company TIO Networks into a $304-million sale to PayPal in 2017, and backstopped by Hong Kong investor Sir Li Ka-shing.
“We believe WELL’s ability to bolster its digital portfolio represents the larger opportunity in terms of EMR, telehealth and other bolt-on technology acquisitions and subsequent organic growth, especially as it monetizes its solutions across a broader EMR network at higher margins,” said Newman. “The key driver will be the focus on value-added patient engagement technologies and other tools. Future clinic acquisitions will also be geared toward those that have shown a greater propensity toward digital operations, which aligns with its hybrid approach to patient treatment.”
Newman said small cap stocks like WELL may be negatively impacted by information asymmetry and higher perceived risks along with the fact that today’s investors generally have a wide range of assets from which to choose, but the analyst argued that the currently turbulent period is a good time for investing in small caps like WELL Health.
“Our view remains that small cap stocks should be able to outperform the broader market in a soft economic environment if they exhibit the following key factors: market leadership, inelastic demand, innovative and disruptive products, recurring revenue, consistent free cash flow, strong financial position and efficient acquisition integration,” Newman wrote. “We believe WELL ticks all the boxes.”
Looking ahead, Newman sees potential catalysts for WELL in further adoption of healthcare technology in light of COVID-19, growing investor awareness of the company and future acquisitions.
The analyst thinks WELL will generate fiscal 2020 revenue and adjusted EBITDA of $43.1 million and negative $1.1 million, respectively, and fiscal 2021 revenue and adjusted EBITDA of $60.8 million and $3.0 million, respectively.
At press time, Newman’s $3.90 target represented a projected one-year return of 24.6 per cent.
Disclosure: Nick Waddell and Jayson MacLean own shares of WELL and the company is an annual sponsor of Cantech Letter.