WELL Health Technologies has a 331 per cent upside, says Stifel

Look for organic growth to be a focal point in 2023 for WELL Health Technologies (WELL Health Technologies Stock Quote, Charts, News, Financials TSX:WELL), according to Stifel GMP analyst Justin Keywood, who reviewed the latest quarterly results from WELL in a report on Thursday.

WELL Health is a digital healthcare company with business in physical medical clinics, virtual healthcare in the United States and Canada as well as an Electronic Medical Records (EMR) business, Revenue Cycle Management, data protection services and a gastroenterology and anesthesia business in the US. WELL reported third quarter 2022 financials on Thursday, featuring record quarterly revenue of $145.8 million, representing a 47 per cent year-over-year increase. Adjusted EBITDA was also a record at $27.5 million compared to $22.3 million a year earlier.

WELL said the record numbers came in a quarter that is seasonally not its strongest.

“These exemplary results were once again driven by strong operating performances across all our lines of business including on and offline channels reflecting robust operating margins and organic growth of over 18 per cent year-over-year,” said WELL Chairman and CEO Hamed Shahbazi in a press release. 

“Organic growth in our Virtual Services was especially strong at 75 per cent, making Virtual Services now our single largest line of business by revenue, larger now than our CRH or our Canadian Clinics businesses which both continue to grow and perform nicely,” Shahbazi said.

Keywood said WELL’s top and bottom lines beat analysts’ estimates, with the $145.8 million in revenue coming out ahead of the consensus call at $141.9 million and the $27.5 million in adjusted EBITDA also beating the Street’s $24.9 million. 

Keywood noted management’s guidance which upped the 2022 sales outlook from $550 million to $565 million, implying about an 87 per cent growth rate. As for 2023, the company is expecting to end the year with a revenue run-rate approaching $700 million.

“WELL is unique as a healthcare services and technology company with multiple levers to drive growth. The company expanded rapidly throughout the pandemic via M&A, including with over 30 transactions. The M&A pace has slowed recently and WELL has turned its attention on driving operational improvement and greater organic growth. Q3 results demonstrate this focus with 18 per cent organic growth with good EBITDA and cash generation,” Keywood said.

With the update, Keywood maintained a “Buy” rating on WELL and one-year target price of $13.50, which at press time represented a projected return of 331 per cent.

“The relatively new health-tech sector is volatile as many companies rushed to issue shares throughout the pandemic with frothy valuations to re-set substantially. WELL is much different than most peers with profitable growth and certain assets that have moat-like characteristics in Canada. The stock is trading at 1.6x 2022 sales and 1x the guided exit run- rate in 2023 versus mostly unprofitable peers at above 2x sales,” Keywood wrote.

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