WELL Health stock could rise on US listing, Echelon says

Strong quarterly results from WELL Health Technologies (WELL Health Technologies Stock Quote, Charts, News, Analysts, Financials TSX:WELL) have Echelon Capital Markets analyst Rob Goff staying bullish on the company and stock. In an update to clients on Friday, Goff reviewed the Q4 2021 numbers and reiterated both his “Speculative Buy” rating and $13.00 target price, which at press time represented a projected one-year return of 149.5 per cent.

Vancouver-based WELL Health delivered fourth quarter earnings on Thursday, showing record quarterly revenues of $115.7 million, representing a 573 per cent year-over-year increase, while for the 2021 year, revenue was up 502 per cent to $302.3 million.

“We are very pleased with our fourth quarter and full year results for 2021, delivering close to one million patient-visits and asynchronous consultations,” said founder and CEO Hamed Shahbazi in a press release. 

“Last year was a transformational year for WELL, as we completed substantial acquisitions including CRH Medical and MyHealth, as well as a number of tuck-in acquisitions, which catapulted the Company to an over $460 million annualized revenue run-rate and an Adjusted EBITDA run-rate of over $100 million,” Shahbazi said. “We have added significant scale to our business and increased our leadership position as the prominent end-to-end healthcare company in Canada. Also, WELL is a profitable business that is generating significant free cash flow to fund its organic and inorganic growth.”

WELL Health owns and operates Canada’s largest network of primary and specialized healthcare clinics and also has an EMR business, telehealth businesses and has acquired a number of US operations including gastroenterology and anesthesia company CRH Medical, telemedicine company Circle Medical and women’s health platform Wisp.

WELL’s share price catapulted ahead over the first stretch of the pandemic but then evened out over the first half of 2021 and pulled back over the back end of the year. So far in 2022, WELL is currently up about two per cent.

But Goff sees more good times ahead, calling the Q4 results an outperformance stemming from strong execution. WELL’s results came out ahead of Goff’s and the Street’s estimates on revenue, gross profit and EBITDA, with Goff noting in his report that WELL had guided the market in late January towards the Q4 results, saying it would exceed $112.5 million in revenue, with EBITDA approaching $25 million.

The results showed WELL’s realized $115.7 million topline beating Goff’s $114.0 million estimate and the consensus call for $113.0 million, with WELL’s gross profit at $63.5 million beating Goff’s $58.0 million estimate and the consensus $56.3 million and WELL’s $25.7 million in EBITDA also coming in above Goff’s $23.3 million estimate and the Street’s $23.0 million. (All figures in Canadian dollars except where noted otherwise.)

“We are encouraged by the quarter’s outperformance and the Company easily exceeding its Rule of 30 target – adding EBITDA margin plus organic growth to sum over 30 per cent – where WELL’s organic revenue growth plus its EBITDA margin came in at 32 per cent+ on the quarter. While the quarter reflected strength across the platform, WELL’s US-based Virtual Services assets in Wisp and Circle are deservedly attracting much of the attention. WELL’s continued reinvestment into the acquired assets has led to annualized revenue run-rates exceeding US$80 million (US$40 million+ each), with expectations to surpass US$100 million later this year,” Goff wrote.

Goff dug into how well the company’s Circle Medical and Wisp assets have been doing, pointing out that when WELL acquired Circle Medical in September, 2020, it was generating about US$5 million in run-rate revenues compared to over US$40 million as of March 2022. 

“[Circle Medical’s] digital primary care platform is focused on an aggressive customer acquisition plan while deepening engagement between patients and providers. Additionally, Circle has increased its healthcare providers ~250 per cent y/y to the 134 active providers on the platform currently,” Goff wrote.

For Wisp, Goff said the company has increased its annualized revenue run-rate from about US$30 million as of August, 2021, to now over US$40 million, with WELL saying it expects this growth to continue as Wisp expands its product and service suite this year.

On comps, Goff estimated WELL to be currently trading at EV to revenue/gross profit/EBITDA valuation multiples of 2.8x/5.5x/21.1x compared to its US digital health peers at averages of 3.6x/7.9x/24.6x, respectively.

“WELL’s 2021 outperformance, along with full year contributions from CRH, MyHealth, and Wisp in 2022, and robust Virtual Services organic growth expected, support our 2022 revenues/gross profit/EBITDA of $505.1 million/$260.2 million/$97.2 million against the pre-Q421-release consensus of $489.0 million/$248.1million/$99.6 million,” Goff wrote.

“WELL remains a relatively conservative vehicle for exposure to the secular growth of health technology and care. The Company’s 2022/23 EV/EBITDA at 21.1x/16.1x offer a measure of support while sentiment remains negative. We continue to view the prospects of a US listing as a potential significant positive catalyst towards narrowing the valuation gap accorded to WELL’s shares,” he said.

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