WELL Health Technologies has a 182 per cent upside, says Laurentian

Ahead of third quarter results from WELL Health Technologies (WELL Health Technologies Stock Quote, Charts, News, Analysts, Financials TSX:WELL), Laurentian Bank Securities provided an update on Friday on the Canadian health tech company. Laurentian analyst Nick Agostino said WELL’s Virtual Services segment should continue to drive growth over the company’s Q3, set for release on November 10 before market open.

Vancouver-based WELL Health has a number of businesses, including a medical clinic network, an Electronic Medical Records business, telehealth services in Canada and the United States and a gastroenterology business in the US. WELL’s US-based virtual health services include Circle Medical and female medicine-oriented WISP, which together are expected to deliver 124 per cent year-over-year organic growth in the Q3, according to a recent update from WELL.

“We’re very pleased to report another record quarter of patient visits and interactions mainly delivered by our more than 2,300 healthcare provider partners systemwide,” said Hamed Shahbazi, Chairman and CEO of WELL, in a third quarter preview on November 2. 

“WELL’s business model is simple and effective because it is laser focused on supporting and tech-enabling the healthcare providers that form the bedrock of our healthcare ecosystem. Our solutions help care providers with all aspects of their business including front and back-office solutions so that they can focus on patient care and not administrative burdens and deliver improved patient outcomes,” Shahbazi said.

As for Agostino, the analyst is modelling in-line sales totalling $142.2 million for the quarter, which would represent 43.2 per cent year-over-year growth. $27.1 million of that total is expected to come from recent acquisitions in Canada and the US, while the company’s organic growth is expected to come in at 16 per cent. With about 57 per cent of the company’s business now being generated in the US, Agostino says a strengthening US dollar should be beneficial to the company’s top and bottom lines. 

On earnings, Agostino said General and Administrative expenses are expected to see margins compress over the quarter.

“We model EBITDA of $25.6 million on strong GM expansion to 53.9 per cent versus 50.3 per cent YoY led by the solid growth in the higher margins Virtual Services business. However, our EBITDA margin is compressed YoY from 22.4 per cent to 18.0 per cent on increased G&A to support top line growth (in particular for Circle Medical and WISP), inflationary pressures on labour and including M&A over the last 12 months,”Agostino wrote.

The analyst estimated WELL’s cash available for M&A at around $383 million and he said WELL is currently trading at a discount to its peers.

“WELL currently trades at 1.5x NTM EV/Sales and 8.3x NTM EBITDA versus high-growth Medical Technology companies at 2.1x and 11.3x, respectively, excluding outliers, despite a superior growth+margin profile,” Agostino wrote.

With the update, Agostino reiterated a “Buy” rating on WELL and one-year price target of $8.00, which at the time of publication represented a projected one-year return of 181.7 per cent.

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