WELL Health Technologies is a double, says Stifel

Stifel GMP analyst Justin Keywood remains bullish on WELL Health Technologies (WELL Health Technologies Stock Quote, Chart, News, Analysts, Financials TSX:WELL), maintaining a “Buy” rating and target price of $13.50/share for a projected return of 104 per cent in an update to clients on Thursday.

Founded in 2010 and headquartered in Vancouver, WELL Health Technologies owns and operates a portfolio of primary healthcare facilities in Canada and the United States, while also providing digital electronic medical records (EMR) software services and telehealth services, with nearly 30 clinics it operates on its own and over 2,000 clinics in Canada to which it provides software solutions.

Keywood’s latest analysis comes after WELL Health provided a corporate update, outlining a streamlined organizational structure of two business units, Omni-Channel Patient Services & Virtual Services, along with about $70 million in combined free cash flow targets for CRH Medical and MyHealth, its specialty care subsidiary.

“Our thesis on WELL is essentially unchanged, despite the business evolution and substantial growth,” Keywood said. “WELL is seeking to digitize healthcare, an industry that has significantly lagged others in technology adoption. The pandemic has accelerated the use of technology in healthcare, which WELL seeks to capitalize on.”

In his updated analysis, Keywood also made note of the idea that the company could achieve the Rule of 30 through ten per cent organic growth as WELL digitizes operations and cross-sells services along with 20 per cent EBITDA margins.

The company has been aggressive on the merger and acquisition front, with Keywood noting that WELL has executed approximately 30 transactions since 2018. The end result, Keywood said, is a continually evolving ecosystem of healthcare assets including primary care, specialty clinics, a 20 per cent market share in EMR, cybersecurity, CRH, and telehealth, among other areas, with everything working to further extrapolate growth through cross-selling services.

Keywood also noted that the company’s annual run rate now exceeds $400 million in sales with a path towards $100 million in adjusted EBITDA, a significant step forward from the reported $50 million in sales and negative adjusted EBITDA in 2020. In fact, for the upcoming third quarter projections alone, Keywood expects the company to report $88 million in sales for a sixfold year-over-year increase, along with $18 million in adjusted EBITDA for an approximate 20 per cent margin.

“WELL has been working hard to integrate, streamline operations and activate network effects and we are excited to report that the results are excellent, mainly because WELL has phenomenal business unit leaders and operators,” said Hamed Shahbazi, WELL’s Founder and CEO in the company’s October 28 press release. “Our tech enablement of healthcare practitioners plus capital allocation program is working and as a result, we are experiencing unprecedented growth. We look forward to speaking to this acceleration of organic growth across our business at our upcoming earnings event.”

Keywood’s financial projections have WELL Health on a steep and sustained ascent, as he forecasts revenue of $274.2 million in 2021 for a potential year-over-year increase of 446 per cent. For 2022, Keywood projects $426.9 million in revenue for a potential year-over-year increase of 55.7 per cent.

Meanwhile, Keywood expects WELL Health’s EBITDA to turn positive for the first time in 2021 at a projection of $54.1 million to yield a margin of 19.7 per cent, with a further increase to a projected $92.6 million in 2022 for a margin of 21.7 per cent.

The analyst is projecting the company’s EV/Revenue multiple to drop from the reported 32.4x in 2020 to a projected 5.9x in 2021, then dropping to a projected 3.8x in 2022. Meanwhile, Keywood projects the company’s EV/EBITDA multiple for the first time in 2021 at 30.1x before dropping to a projected 17.6x in 2022.

With earnings per share projected to be $0.25/share in 2022, Keywood also projects a price-earnings multiple for the first time that year at 26.5x.

According to Keywood, WELL still trades below its peer group at 3.8x pro forma sales compared to the comparable average of 8x, with Keywood noting that most of those peers are not profitable operations, and that WELL can further boost its status through the demonstration of organic growth and the realization of profit and cash flow.

Overall, Keywood believes WELL Health is simply reaffirming Stifel’s thesis, and is confident in the company’s continued progression moving forward.

“WELL acquires healthcare assets and digitizes operations and cross-sells other acquired technologies,” Keywood said. “WELL has created a unique and diversified healthcare ecosystem, and we now expect a greater focus on driving revenue synergies and organic growth, along with attention to FCF.”

WELL Health’s stock price is down 14.8 per cent for the year to date, hitting a high point of $9.23/share on February 24 before going back up and then down again, bottoming out at $6.52/share on Wednesday.

Disclosure: Nick Waddell and Jayson MacLean own shares in WELL Health Technologies and WELL is an annual sponsor of Cantech Letter.