WELL Health keeps $10.00 price target at Stifel

Stifel GMP analyst Justin Keywood is expecting a strong fourth quarter from WELL Health Technologies (WELL Health Technologies Stock Quote, Chart, News TSX:WELL) following its just-released corporate update. In a report to clients on Wednesday, Keywood reiterated his “Buy” rating and $10.00 target price, which at the time of publication represented a projected one-year return of 46.4 per cent.

WELL Health is a Vancouver-based omni-channel digital health company with a number of businesses including electronic medical records (EMR), a growing group of currently 20 primary healthcare clinics, a telemedicine business, cybersecurity and a digital health apps platform. WELL’s share price has shot up in 2020 and is currently up 354 per cent year-to-date.

The company provided a corporate update on Wednesday where it reviewed a busy fourth quarter so far. WELL has closed on seven transactions over the Q4 including a majority stake in an allied health provider, the acquisition of DoctorCare, acquiring the remaining shares of Canadian telehealth company Insig, acquiring San Francisco-based telemedicine business Circle Medical, acquiring a cybersecurity business, a minority stake in a digital pharmacy and acquiring a Quebec-based digital healthcare company.

Altogether, the company said its annualized revenue run-rate is getting closer to the $100-million mark and currently sits at over $94 million. As far as its segments go, WELL said telehealth is growing revenues and has had record volume; its Digital Health Apps business unit is “thriving with significant sequential organic and inorganic growth” in Q4; its Allied Health unit is seeing over 40-per-cent year-over-year revenue growth; its Cybersecurity segment is profitable and had its best month to date in November and was significantly bolstered by the acquisition on December 1 of Canadian cybersecurity consulting and professional services firm Source 44; and DoctorCare’s Billing as a Service revenue has increased by 30 per cent year-over-year.

WELL said it expects to be adjusted EBITDA-positive for its fiscal Q4.

“Thus far, our fourth quarter has been a remarkable one for WELL as we strengthened our balance sheet, accelerated our M&A activities and achieved substantial organic and inorganic growth. In addition, I’m delighted to report that we are on track to achieving profitability in the business. Our acquisition pipeline remains active as we currently have a multitude of signed Letters of Intent (LOI) with promising clinical and digital health assets, all of which we expect to complete by the first quarter of 2021,” said Hamed Shahbazi, CEO, in a press release.

Based on the update and recent developments with WELL, Keywood said he’s raising his Q4 sales estimate from $15 million to about $18 million, which would represent a year-over-year increase of over 80 per cent while also having updated his 2021 and 2022 forecasts.

“We interpret WELL’s update as leading to a beat in Q4 revenue, where the street is currently forecasting $16 million and our estimate now exceeds this at ~$18 million. Our adjusted EBITDA forecast also increases but more moderately from a loss of (~ $100K) to +$160k. We also see a strong Q1/F2021 developing and forecast ~$22 million in sales, up 114 per cent year-over-year,” Keywood wrote.

The analyst listed a number of key elements to his investment thesis on WELL. He noted that WELL is anticipated to either acquire or build more clinics, with Keywood forecasting about 28 clinics by the end of 2021. Keywood said the clinics offer a unique testing ground for WELL’s new technologies, with the company’s entry into EMR supporting onboarding more patients to its platform. Organic growth potential is there as well, as WELL rolls out its acquired and developed technologies across Canada and the US.

On the further acquisition of tech assets, Keywood said, “We see recent transactions as adding valuable SaaS revenue, leading to a platform offering and higher stock multiple. The M&A pursuit has also become much more valuable with changes in telehealth billing codes, now bridging virtual care technology.”

Finally, Keywood said there’s a strong track record of value creation by WELL management, with management and insiders well-aligned at around 25-per-cent ownership. “In a longer-term scenario, we could foresee part or all of WELL’s assets being acquired by private equity or larger strategic companies in this valuable industry,” he added.

Keywood called WELL Health an early stage consolidator and compared it to Canadian names Enghouse, Descartes Systems and Constellation Software with a health-tech focus.

Looking ahead, Keywood thinks WELL will generate full 2020 revenue and EBITDA of $51.1 million and negative $0.8 million, respectively, 2021 revenue and EBITDA of $100.0 million and $6.3 million, respectively, and 2022 revenue and EBITDA of $124.9 million and $12.5 million, respectively.

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