CloudMD has plenty of upside, says Echelon

Echelon Capital Markets analyst Rob Goff likes the latest divestment move by CloudMD Software & Services (CloudMD Software & Services Stock Quote, Charts, News, Analysts, Financials TSXV:DOC), saying in a Tuesday report to clients that a renewed focus on its core business will benefit the company.

Canadian health tech name CloudMD, which has digital healthcare offerings along with enterprise health solutions, announced on Monday a definitive agreement with independent pharmacy company Neighbourly Pharmacy for the sale of CloudMD’s two BC-based pharmacies for $3.8 million. 

It’s the second recent move from DOC to pare down its business, following on the announced sale in October of its BC-based primary care clinics and cloud practice and its EMR and practice management software to WELL Health Technologies.

“We are pleased with the progress and non-dilutive capital we’ve been able to generate through the divestiture of assets in our non-core Clinics and Pharmacies division,” said CloudMD CEO Karen Adams in a press release.

“Given these challenging and unpredictable markets, we remain focused on delivering meaningful, revenue growth, driving near-term profitability, prudent cash management and improving operating expenses to provide long-term operational consistency and stability,” she wrote.

Commenting on the new transaction, Goff said it was not unexpected, while the price obtained at $3.8 million is better than the analyst’s anticipated call at between $2.0 and $3.0 million. He said the sale should also be accretive to CloudMD’s margins, since the two pharmacies generated negligible earnings contributions and very low gross margins at between 15 and 20 per cent.

“We are optimistic that with a renewed focus toward CloudMD’s core businesses in Enterprise Health Solutions and Digital Health Services, the Company can execute on its double-digit organic growth potential while remaining disciplined and generating positive EBITDA (expected in H123),” Goff said.

CloudMD’s share price has fallen a long way over the past year and a half, going from a high of around $3.00 in February, 2021, to now sub-$0.30 territory. But Goff sees upside from here, arguing that the company has positive EBITDA on the radar. The analyst is calling for full 2022 revenue and adjusted EBITDA of $164.4 million and negative $9.5 million, respectively, and for 2023 revenue and EBITDA of $174.0 million and positive $3.3 million, respectively. 

With the update, Goff reiterated a “Speculative Buy” rating on DOC and $0.80 target price, which at press time represented a projected one-year return of 263.6 per cent.

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