WELL Health wins street-high $11.75 target at Paradigm Capital

Look for the rapid pace of M&A activity to continue for WELL Health Technologies (WELL Health Technologies Stock Quote, Chart, News, Analysts, Financials TSX:WELL), according to Daniel Rosenberg, analyst for Paradigm Capital. Rosenberg issued an update on the company Thursday where he boosted his target price from $10.80 to $11.75 per share.

Rosenberg recently spoke with Hamed Shahbazi, CEO of WELL, a healthcare tech company that has primary care clinics, an electronic medical records (EMR) business, a telehealth platform, a health apps marketplace and cybersecurity-related tech solutions.

In their conversation, Shahbazi had highlighted the strong traction taking place with US telemedicine acquisition Circle Medical, where revenue over this past November exceeded $1 million, well ahead of Rosenberg’s estimate of $550,000. Shahbazi also pointed to a strong uptick in its Allied Health business, while emphasizing the company’s continued focus on establishing a national clinical footprint in Canada and its opportunities to further grow into the US.

Rosenberg said WELL, which closed on eight transactions over the just-finished fourth quarter alone, is likely to keep up with its accelerated M&A activity. The analyst noted that since early 2018 WELL has entered into about 25 transactions, with management now poring over a watchlist “in the hundreds,” with a continuous flow of inbound leads.

“Since the company raised $80.5 million on October 22, it has announced and/or closed ten transactions. This is an acceleration of activity and we believe the rapid pace can be sustained, given the organizational structure of WELL into six separate divisions with established leadership in each, and given senior leadership is focused on capital allocation. In addition to frequency, the general size of deals has also been increasing,” Rosenberg wrote.

Based on positive momentum generated by WELL, Rosenberg has maintained his “Buy” rating with the lifted target of $11.75, which at press time represented a projected 12-month return of 53 per cent.

“WELL is establishing itself as a technology leader in the healthcare sector. For investors it is an M&A compounder, which can drive value with the massive healthcare market that is ripe for digital transformation. Secular changes accelerated by the pandemic are strong tailwinds that support WELL’s strategy to leverage technology and drive efficiencies in healthcare – in turn improving patient outcomes and generating shareholder value,” Rosenberg wrote.

By the numbers, Rosenberg raised his estimates based on the increased M&A activity and momentum of WELL’s core business. The analyst is now calling for full 2020 revenue of $50.1 million (previously $49.3 million) and adjusted EBITDA of negative $0.7 million (previously negative $0.8 million). For 2021, he is calling for revenue of $117.2 million (previously $113.2 million) and adjusted EBITDA of $5.2 million (previously $3.9 million). The longer forecast calls for 2022 revenue and EBITDA of $167.5 million and
$18.7 million, respectively.

Rosenberg said WELL is fitting in excellently with industry trends.

“Management has indicated that it views each of its six divisions as having the capacity to be larger than WELL’s entire business to date. While this is an ambitious statement, these are unique times with secular changes to healthcare having been accelerated by COVID,” Rosenberg wrote.

“Digitization of healthcare has been bottlenecked for decades by regulatory issues, privacy issues and fragmented care delivery. All these roadblocks appear to be dissipating quickly as government-backed systems look to better co-ordinate, patients have increasing comfort with digital delivery channels and physicians have adapted to virtual medicine. Healthcare systems are accelerating toward patient-centric care powered by technology and WELL is well positioned to capitalized on the opportunity,” he said.

“We increased our multiple on account of WELL’s better-than-expected momentum. We believe WELL has positioned itself for substantial long-term value creation in the massive healthcare market. We would be buyers here,” Rosenberg wrote.

WELL issued an update on its EMR segment last Friday, saying business is growing organically and inorganically. The company said its EMR Group had a record quarter in the Q4 2020 with revenue more than doubling year-over-year and hitting 25 per cent EBITDA margins in the Q4. WELL said clinics using its OSCAR EMR platforms (now at 2,200 and over 10,700 physicians as of December 31, 2020) generated about $325 million in billings over the quarter for an annualized run-rate of about $1.3 billion.

In addition, WELL said it has transitioned all of the approved OSCAR service providers associated with new acquisitions ClearMedica and Open Health Software Solutions onto WELL’s OSCAR Pro platform.

“Our first agreement to migrate doctors and clinics from a non-OSCAR EMR provider to OSCAR Pro is an important milestone in WELL's ability to continue to grow its EMR customer base,” said Arjun Kumar, CIO of WELL, in a press release. “This type of arrangement is powerful in that it expands our addressable market and furthers our aggressive growth strategy.”

Cantech Letter’s Nick Waddell and Jayson MacLean own shares of WELL Health and the company is an annual sponsor of the site.