The market has WELL Health Technologies pegged wrong, Scotia analyst says

The stock has taken a beating over the past half-year but Scotia Capital analyst Adam Buckham sees robust growth trends in WELL Health Technologies (WELL Health Technologies Stock Quote, Charts, News, Analysts, Financials TSX:WELL). Buckham reviewed WELL’s latest business update in an Equity Research update to clients on Thursday where he reiterated his “Sector Outperform” rating and $9.00 price target for a projected one-year return of 135.0 per cent at the time of publication.

Vancouver-based WELL Health is an omni-channel digital health company that owns and operates a portfolio of healthcare clinics along with various telehealth and digital offerings. Publicly listed since 2019, the company ended 2021 having completed a number of acquisitions to boost its reach into further avenues of the healthcare industry, while on Thursday WELL announced some preliminary results for its fourth quarter 2021, highlighting growth in revenue and patient visits over its network.

WELL said it ended 2021 with an annualized revenue run-rate of over $450 million (compared to the previous guidance of “approaching $450 million”) and an annualized operating Adjusted EBITDA run-rate approaching $100 million. In total, WELL had 692,913 patient visits for the fourth quarter across its assets including 146,116 diagnostic visits conducted by MyHealth, a health services provider operating in 48 locations across Ontario which WELL acquired this past July, and 126,265 asynchronous patient consultations by Wisp, a US-based teleheath and e-pharmacy services business in which WELL bought a majority stake this past October.

“WELL’s business has never been stronger as evidenced by our solid patient visit metrics, a key leading indicator of our financial performance and profitability given the historically resilient per unit economics of our patient services business,” said Hamed Shahbazi, Chairman and CEO of WELL Health, in a January 20 press release. “With our strong balance sheet and positive cash generation profile, WELL is favourably positioned to continue to grow both organically and inorganically.”

Buckham called WELL’s update a positive for the company and stock as it showcases a “clear disconnect between fundamentals and the market,” he wrote. 

Buckham noted that WELL’s share price is now down about 57 per cent from its 52-week highs and about 40 per cent since its third quarter results. 

“While we understand that the macro backdrop is currently unfavourable for growth oriented names, with WELL being one of the few ‘digitally exposed’ companies that pack a one-two of growth and positive EBITDA/FCF, we believe that the market has gotten it wrong in this case. On our current numbers, WELL exits the day trading at ~14.5x FWD shareholder EBITDA, which seems undervalued to us given recent growth trends,” Buckham said.

By the numbers, Buckham is calling for WELL to finish 2021 with $297 million in revenue for an EV/Revenue multiple of 5.7x, while for 2022 and 2023 the analyst is projecting toplines of $500 million and $529 million, respectively, for EV/Revenue multiples of 2.5x and 2.3x, respectively. (All figures in Canadian dollars except where noted otherwise.)

WELL also updated in its January 20 press release on a big acquisition of this past year, US-based gastroenterology business CRH Medical, bought last April for US$372.9 million, saying the unit is on track for US$43 million in free cashflow before tax and leverage costs in 2021. CRH itself acquired over the fourth quarter Utah Anaesthesia, which is expected to generate about US$2.5 million in annual EBITDA. 

“WELL continues to demonstrate network effects from its CRH acquisition and opened a new haemorrhoid treatment clinic in Toronto and completed the acquisition of another haemorrhoid treatment center in Surrey, BC. Both clinics are majority owned by WELL as 51 per cent partnerships.  WELL plans to open several additional de novo haemorrhoid treatment clinics in BC and Ontario as well as in the United States over the next few months,” the company said in the press release.

With the update, WELL said it will be re-activating its share buy-back program after releasing its Q4 and full-year 2021 results, saying that its Board of Directors believes that WELL’s recent share prices “do not properly reflect the underlying value” of the shares and thus that the purchase and cancellation of shares would be a good use of corporate funds.

“WELL’s balance sheet and cashflows are healthy and position the Company to accomplish a number of strategic objectives through our capital allocation program including: (i) buying back our stock through our approved NCIB program; (ii) continuing our M&A program through highly accretive tuck-in acquisitions; and (iii) investing in growth opportunities in our own portfolio of businesses which can generate a high rate of return,” said Eva Fong, WELL’s CFO, in the press release. “We are poised to demonstrate healthy organic growth, solid cashflows and strong financial position through our upcoming earnings announcements.”

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