Raymond James launches coverage of WELL Health with bullish target

Tailwinds aplenty are driving the story behind WELL Health Technologies (WELL Health Technologies Stock Quote, Charts, News, Analysts, Financials TSX:WELL), according to Raymond James analyst Michael W. Freeman, who initiated coverage of the stock this week with an “Outperform” rating. Freeman said tech-enabling doctors is the right idea and WELL’s hybrid healthcare platform is already generating impressive results.

Vancouver-based WELL Health owns and operates the largest private outpatient clinic network in Canada and has primary and specialty health care businesses in the United States, along with virtual care services in both countries and software to support physicians and healthcare providers.

The stock has been on a solid rally in recent months, climbing to more than a double since the start of the year, but Freeman sees more upside to come. With his “Outperform” rating, the analyst asserted a 12-month target price of $8.50 per share, which at press time represented a projected return of 50.4 per cent.

“In our view, WELL has become the centre of gravity in Canada’s primary healthcare and digital health ecosystem and is a rapidly ascendant power in US hybrid care, growing by way of disciplined, accretive M&A — ~50 acquisitions executed since inception — and strong organic growth, posting 19 per cent year-over-year in FY22,” Freeman wrote in the Raymond James report, published on Tuesday. 

“And, while WELL’s US presence is a newer part of its story, it’s no less important: WELL drove nearly 60 per cent of its FY22 total Rev. from its US businesses in primary, specialty, and virtual care (+100 per cent year-over-year),” he said.

On WELL’s Canadian business, Freeman said there are tailwinds in massive federal funding to improve capacity and modernize systems; meanwhile, provincial governments are tapping the private sector to provide publicly-funded services. As well, Freeman noted that WELL Health’s outpatient clinic market share is currently at just one per cent, leaving significant room to grow. 

Finally, on the impact of artificial intelligence in healthcare, Freeman wrote, “WELL is one of Canada’s largest holders of health data (others: Telus, Loblaw), and is the most likely group, in our view, to quickly adopt generative AI to high-grade its tech offerings by building on its hard-to-beat tech stack.”

As for WELL’s business in the US, Freeman said its CRH Medical gastroenterology and anaesthesia business continues to be a mature cash flow machine, while its Circle Medical and Wisp virtual products are WELL’s two fastest-growing businesses. Further, Freeman argued that high-profile M&A in the US primary and hybrid care sector is impelling fund flows into the space and towards companies like WELL, which Freeman called a not-yet Nasdaq-listed, profitable, rising star in the US.

“WELL is the only publicly traded, large-scale healthcare operator in Canada and is a rare bird in the US: a fast-growing and profitable hybrid care operator that has yet to be acquired. We believe investors focused on this space are being faced with a scarcity of scaled, innovative, profitable operators in which they can build positions; we believe this is to WELL’s great benefit,” Freeman wrote.

On WELL’s financials, Freeman is expecting revenue to go from $569 million in 2022 to $671 million in 2023 and to $743 million in 2024, with EBITDA forecasted to go from $105 million in 2022 to $114 million in 2023 and to $136 million in 2024.

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