WELL Health is still a very cheap stock, Stifel GMP says

Developments in the Canadian healthcare space look to be favourable for WELL Health Technologies (WELL Health Technologies Stock Quote, Charts, News, Analysts, Financials TSX:WELL). That’s according to Stifel GMP analyst Justin Keywood, who provided a company update to clients on Friday where he maintained a “Buy” rating on the stock and $13.50 target price, good for a projected one-year return at the time of publication of 251 per cent.

Keywood spoke of the Ontario Government’s recently stated plans to increase public support for some procedures in private, for-profit clinics as part of government’s larger aim of providing more access to healthcare services. Keywood noted that part of the plan will involve digital initiatives such as “axe the fax,” aimed at upgrading antiquated systems, a move which is right in WELL’s tech-oriented wheelhouse, the analyst said.

“We see WELL as a beneficiary initially through greater MRI, CT scans and other diagnostics, applicable to MyHealth. WELL’s ~20 per cent EMR market share is also increasingly valuable with new digital initiatives. There is great variability to how the two-tiered system will develop, but we see WELL as a solid way to gain early exposure at only 1.7x sales,” Keywood wrote.

WELL Health has a diversified platform of healthcare services and tech assets in Canada and the US, including over 85 clinics in Canada, two primary care clinics in the US, service to over 126 US ambulatory centres, an Electronic Medical Records business and virtual care businesses in Canada and the US.

The company last reported its financials in November, where quarterly revenues were $145.8 million for WELL’s Q3 2022, representing a 47 per cent year-over-year increase, and adjusted EBITDA of $27.5 million, also up 23 per cent year-over-year.

Keywood said WELL’s business model has shown to be recession-resilient and has a high attachment rate by patients, leading to a mostly recurring revenue model.

“WELL also seeks to create the next generation of healthcare by focusing on integrating technologies to serve patients better and drive efficiencies in its operations. The fundamentals have showed increasing value for this pursuit with higher gross margins and solid organic growth,” Keywood wrote.

Remarking on the M&A climate in healthcare, Keywood said recent transactions such as CVS Health’s bid for Oak Street Health at a reported US$10 billion (representing a 60 per cent premium at the time of announcement) show favourable purchase multiples despite unfavourable market conditions. Keywood said recent transactions are at take-out premiums within a range of 3x to 9x sales, which would compare to WELL, which is currently trading at 1.7x 2023 sales.

“There remains variability on how the healthcare system evolves in Canada, but we see a strong long-term case to be investing in WELL at only 1.7x 2023 sales vs. peers at 3x,” Keywood wrote.

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