Echelon Capital Markets analyst Rob Goff is feeling good about WELL Health Technologies (WELL Health Technologies Stock Quote, Chart, News, Analysts, Financials TSX:WELL), raising his target price to $13.00/share from the previous mark of $12.00/share while maintaining a “Speculative Buy” rating in his most recent update to clients on Friday.
An omni-channel digital health company with a number of business segments and operations in Canada and the United States, Vancouver-based WELL Health has put an emphasis on acquiring digital and physical healthcare assets.
Goff’s most recent analysis comes after WELL Health released second quarter financial results on Thursday that beat the analyst’s expectations.
“We are encouraged by the quarter’s outperformance with where organic strength across CRH, Virtual, and Circle, in particular warrants positive consideration,” Goff said. “Furthermore, examples of cross-revenue/cost synergies reflect on the Company’s asset strength and fit.”
WELL Health reported total revenue of $61.8 million in the quarter, setting a new company record while producing a 484.2 per cent year-over-year growth in relation to the same period in 2020, and a 141.7 per cent improvement over the first quarter of 2021. The result also outpaced Goff’s initial projection of $52.6 million and the consensus projection of $56.1 million.
Major contributors to the company’s record growth include a 432 per cent year-over-year increase in the company’s virtual services revenue, as well as the acquisition of CRH Medical Corporation, which provides gastroenterologists throughout the United States with services and products to treat gastrointestinal diseases, for US$286.6 million in April of this year.
CRH Medical accounted for $36.7 million in revenue. Earlier this month, CRH completed the acquisition of a majority stake (51 per cent) of Greater Washington Anesthesia, a GI-related anesthesia services business with two locations in North Virginia. The acquisition brings CRH’s total endoscopy sites across the US to 77.
For the Q2, WELL also produced a positive adjusted EBITDA of $11.9 million, beating Goff’s $11.1 million estimate and the Street’s $9.4 million.
“Our practitioner enablement platform and momentum around our acquisitions are delivering extremely strong financial results,” said Hamed Shahbazi, Chairman and CEO of WELL Health, in the company’s press release. “We are grateful to the healthcare practitioners and clinicians that provide outstanding care every day as well as the technology and administrative teams that support them.”
The company’s second quarter results prompted revisions to some of Goff’s 2021 projections, with revenues now forecast to be $279.7 million instead of $265.9 million, which would mark a 457 per cent year-over-year increase from the $50.2 million in revenues reported in 2020. Gross profits are now projected to come in at $134.4 million instead of $131.5 million and adjusted EBITDA is now projected at $56.5 million instead of $57.9 million, the company’s first year projecting an overall positive EBITDA.
Goff forecasts the positive momentum to continue through 2022, as he projects $447.4 million in revenue, $219.4 million in gross profits, and an adjusted EBITDA of $110.1 million, while also expecting a positive free cash flow per share figure ($0.53/share) for the first time.
The valuation data also works in WELL Health’s favour, with Goff projecting a drop in the EV/Revenue multiple from 39x in 2020 to 8.4x in 2021, followed by a drip to 5.2x in 2022, beating peer projections of 9.2x and 7.5x, as well as the targets of 10.2x and 7.5x.
From the EV/EBITDA perspective, Goff’s initial projection for 2021 is 55.4x, dropping to 25.9x in 2022. While his projections are somewhat in line with targets of 80.7x and 37.7x respectively, they differ from the peer estimate of 44x in 2021 before jumping to a forecasted 300.2x for 2022.
“We remain resolutely bullish toward the telehealth industry and those companies leveraging differentiated technology, distribution, and service capabilities to provide integrated healthcare services,” Goff said. “We support primary, ongoing care ahead of episodic care models. WELL Health has moved aggressively in building its product and technology suite. The Company’s OSCAR network and owned clinics represent an efficient distribution network to layer on products/services and accretive acquisitions.”
“Our bullish view is clearly founded on a positive review of its acquisitions, taken both individually and collectively. We find the inclusion of acquisition earnouts as a clear indication of seller confidence and disciplined structuring by WELL to ensure alignment while protecting downside. We support the disciplined approach of making seed investments, such as with Insig, where WELL provides funds to advance the start-up with limited financial exposure, while gaining management influence and full visibility,” he wrote.
At press time, Goff’s new $13.00 target represented a projected one-year return of 62.3 per cent. So far in 2021, WELL has been up and down and is currently at even for the year.
“With outperformance on the quarter and the prospect of a US listing, we are comfortable in raising our price target from $12.00 to $13.00,” Goff said. “WELL shares trade at ~5.2x/10.8x 2022 revenues/gross profits (net figures attributable to WELL shareholders) while its US peers (14 companies) are currently trading at 7.5x and 17.0x 2022 revenues/gross profits (medians of 5.6x and 13.2x).”
Disclaimer: Nick Waddell and Jayson MacLean own shares of WELL Health and WELL is an annual sponsor of Cantech Letter.