With sales forecasted to double over the next two years, WELL Health Technologies (WELL Health Technologies Stock Quote, Chart, News TSX:WELL) deserves a price target raise, says Stifel GMP analyst Justin Keywood, who delivered to clients an update on the stock on Wednesday.
Keywood reiterated his “Buy” rating and lifted his target from $7.00 to $9.00, saying WELL is a catalyst-rich name going forward.
Vancouver-based WELL Health is a an owner and operator of 20 primary healthcare medical clinics in Canada, along with having an electronic medical records business serving over 2,000 clinics and operating a national telemedicine platform.
The company has seen its share price climb 350 per cent in 2020 but Keywood says there is more upside to be had, calling the company’s business model unique in the healthcare field with an important cybersecurity infrastructure.
Keywood said WELL is an attractive exit to entrepreneurs with its M&A model, given the stock’s outperformance and the opportunity to become part of a much larger platform.
The analyst positions WELL as an early-stage consolidator in the vein of Enghouse, Descartes Systems and Constellation Software.
“The pipeline for M&A continues to be wide with 100 assets being evaluated and around ten in an LOI stage. We estimate that WELL has $35-$40 million in pro-forma cash, providing dry powder to double the business with shares often used in part to finance transactions,” Keywood wrote. “Overall, we challenged our thesis, given the already successful investment but believe the stock will re- rate higher with plenty of catalysts still ahead.”
On a valuation basis, Keywood estimates WELL to be currently trading at about 13x consensus EV/2021 sales, which he says is at a premium to its peers but within the range of fast-growing, well-managed peers and generally below US comparables.
We believe that a premium valuation can sustain as the business doubles over the next two years with a clean balance sheet, solid management and unique market dynamics of health-tech to support our view,” Keywood said.
On the numbers, Keywood is calling for WELL to generate fiscal 2020 revenue and EBITDA of $44.8 million and negative $2.3 million, respectively, and fiscal 2021 revenue and EBITDA of $59.8 million and $5.6 million, respectively. The analyst said that as sales approach $100 million (Keywood estimates WELL to hit $89.0 million in 2022), new investors could be interested in both the US and Canada and thus supporting his valuation.
“We also see growth already baked in with solid year-over-year sales metrics in Q3/Q4 as reducing the risk of a valuation re-set to a certain degree, along with the view that telehealth will surge again on possible second waves of COVID-19,” Keywood wrote.
Keywood’s new $9.00 target at press time represented a projected 12-month return of 33.5 per cent.
Earlier this month, WELL announced its entry into the US telehealth market with a definitive share purchase agreement to acquire a majority of shares of San Francisco-based Circle Medical for US$14 million. (All figures in Canadian dollars except where noted otherwise.)
Disclaimer: Nick Waddell and Jayson MacLean own shares in WELL Health and the company in an annual sponsor of Cantech Letter.