Digital health stocks to benefit from privatization, Laurentian says

Health tech stocks should benefit from privatization measures taken by the provinces — that’s the takeaway from a new report by Laurentian Bank Securities analyst Nick Agostino, who said digital health and telehealth services are likely to see increased business.

Ontario Premier Doug Ford released a plan on Monday to expand the use of private, for-profit providers for some surgical and diagnostic services including cataract surgeries, MRI and CT scans and others. Ford said the Ontario healthcare system is under strain and claimed that adding for-profit services and clinics will result in better and more expedient services for citizens.

“The status quo is no longer acceptable. … This is the best way to go to take the burden off the backs of the hospitals,” Ford said on Monday. “This is one step of making sure we provide care. No matter if cataract, hip replacements, knee replacements, foot surgeries, diagnostics.”

A number of health care stocks saw a jump in trading on Monday, including three mentioned by Agostino as within Laurentian’s coverage universe: WELL Health Technologies (WELL Health Technologies Stock Quote, Charts, News, Analysts, Financials TSX:WELL), which was up about 16 per cent, CloudMD Software & Services (CloudMD Software & Services Stock Quote, Charts, News, Analysts, Financials TSXV:DOC), up nine per cent, and Dialogue Health Technologies (Dialogue Health Technologies Stock Quote, Charts, News, Analysts, Financials TSX:CARE), also up nine per cent.

Agostino singled out WELL Health as best-positioned to benefit from Ontario’s privatization of health services, as it could lead to more demand for private clinic services engagement which would benefit WELL’s MyHealth platform of primary care, specialty care and telehealth services. It could promote greater adoption by private clinics of technology to manage growing volumes for virtual services, Agostino said, another potential boon for WELL.

“Engaging more private surgical services may ultimately result in increased private clinic demand for other services/technologies,” Agostino wrote in a Tuesday report.

At the same time, the analyst said building up the for-profit market for surgical procedures and other services could create a bidding war for healthcare service providers who are already in short supply, which could make for higher wage costs for companies.

“The challenge then becomes for these private clinics to seek increased volume/revenue growth to offset these higher costs, as well as increase their adoption of technology tools (as noted above) to drive productivity gains, reduce the cost impact and enhance their profitability,” he said.

With the update, Agostino reiterated “Buy” ratings on WELL Health and Dialogue Health and a “Speculative Buy” rating on CloudMD as well as reiterating the target prices as listed below. Note: all returns are as of the January 17 publication date of Agostino’s report.

Stock: WELL Health Technologies

Laurentian Rating: Buy

Laurentian Target Price: $8.00

Projected 12-month Return: 116 per cent

Stock: Dialogue Health Technologies

Laurentian Rating: Buy

Laurentian Target Price: $6.00

Projected 12-month Return: 86 per cent

Stock: CloudMD Software & Services

Laurentian Rating: Speculative Buy

Laurentian Target Price: $0.75

Projected 12-month Return: 213 per cent