WELL Health keeps $13.50 target at Stifel

Solid quarterly results from Canadian omni-channel digital healthcare company WELL Health Technologies (WELL Health Technologies Stock Quote, Charts, News, Analysts, Financials TSX:WELL) have Stifel GMP analyst Justin Keywood sticking with his bullish stance on the company and stock. In a Thursday report on WELL, Keywood reiterated his “Buy” rating and $13.50 per share target price, which at the time of publication represented a projected one-year return of 254.3 per cent.

“Our thesis on WELL largely does not change, where the company is rolling up fragmented healthcare markets and seeking to digitize operations and create synergies,” Keywood said. 

Vancouver-based WELL Health delivered its first quarter 2022 financials last week, featuring record quarterly revenues of $126.5 million, which represented a 395 per cent year-over-year increase, and adjusted EBITDA of $23.5 million compared to $0.5 million a year earlier.

WELL made a number of key acquisitions over the past year and continued its M&A strategy over the Q1 with an asset purchase agreement to acquire gastroenterology and anesthesia services provider Greater Connecticut Anesthesia Associates for US$12.5 million.

WELL’s first quarter patient visits across its various channels rose by 62 per cent to 772,093, while total patient interactions (which include diagnostic visits via virtual platform MyHealth and asynchronous visits through its US women’s health-focused platform Wisp) hit 1,064,987 for an annual run-rate of 4.26 million patient interactions.

In a press release, WELL’s management highlighted the company’s positive Q1 free cash flow at $11.8 million as well as its organic revenue growth.

CEO Hamed Shahbazi said, “We managed to achieve approximately 15 per cent year-over-year organic growth in the first quarter which demonstrates a 50 per cent acceleration from our previous quarters’ organic growth rate; all this despite the effects of seasonality that normally exists in the first quarter in our US based specialist business. We witnessed strength across all segments of our business in Q1 including both primary and specialized care in both online and in-person channels.”

“Our impressive results were driven by strong patient visits in the quarter,” Shahbazi said. “We’ve added significant scale to our business and increased our leadership position as the preeminent end-to-end healthcare company in Canada, while our US businesses continue to flourish in their respective sectors. Also, WELL is a profitable business that generated $11.8 million free cash flow attributable to shareholders in Q1 which is used to fund the Company’s future organic and in-organic growth.”

With the quarterly report, management increased its 2022 guidance, now calling for revenue to exceed $525 million (previously $500 million) and for the company to be profitable for the full year on an adjusted net income basis, with 2022 adjusted EBITDA “approaching $100 million.” In terms of business strategy, WELL said it would be continuing to expand its healthcare assets in Canada while in the US it will be maintaining focus on key specialty areas such as gastroenterology, women’s health and primary care.

Looking at the first quarter results, Keywood called them solid, with the $126.5 million in revenue beating the consensus call at $119.8 million and the adjusted EBITDA of $23.5 million (18.6 per cent margin) also above the Street’s $20.4 million (17 per cent margin). Keywood noted that the Q1 was WELL’s sixth consecutive quarter of positive adjusted EBITDA.

WELL also recently announced and completed an over-subscribed bought deal financing round for approx. 9.3 million shares at $3.70 per share for proceeds of about $34.5 million, with the offering led by long-time WELL Health backer Li Ka-shing.

Keywood said the deal was completed “in tough markets” and said WELL’s business model and platform for growth are proving resilient in the current uncertain climate. Keywood said having ended the Q1 with $36 million in cash, the extra financing puts its cash balance near $70 million, which allows for M&A flexibility to execute on some “bite-sized” deals.

“WELL has the platform and scale, where smaller but good healthcare assets can be purchased at a discount to create substantial, longer-term value in a current period of turmoil. We see WELL as uniquely positioned to execute,” Keywood said.

“The U.S. health-tech peers have corrected substantially, down (75 per cent) in the past 12 months and leading to a tough backdrop for WELL, down (40 per cent). However, WELL is outperforming financially, as demonstrated in Q1 and new Canadian healthcare consolidators offer valuation support,” he said.

Looking ahead, Keywood is projecting WELL to finish 2022 with revenue of $525.1 million compared to $302.3 million in 2021 and to generate EBITDA of $100.2 million compared to $60.4 million this past year. 

“The improved cash balance for WELL of near $70mm positions the company to execute on depressed valuations for healthcare assets in turmoil markets. We see this strategy as creating substantial, longer-term value, especially in Canada, where the healthcare market is much more fragmented than the U.S. and ripe for consolidation,” Keywood wrote.

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