WELL Health still has an 85 per cent upside, says Raymond James

It’s M&A season for Canadian healthcare tech provider WELL Health Technologies (WELL Health Technologies Stock Quote, Charts, News, Analysts, Financials TSX:WELL), according to Raymond James analyst Michael W. Freeman, who delivered an update on the company on Tuesday. Freeman said investors can expect WELL to bulk up its clinic ecosystem across Canada this year in an attractive market for primary healthcare buyers.

Vancouver-based digital health company WELL Health announced on Friday a definitive share purchase agreement to acquire MCI Medical Clinics (Alberta), which owns and operates five primary care clinics in Calgary. WELL said the $2 million in cash purchase adds over 50 physicians to the WELL stable, with the five clinics expected to collectively add $10 million in annual revenue.

“We view primary care clinics as being strategically important because they serve as a gateway for patients to access healthcare services, and they provide a foundation for building long-term, multi-disciplinary patient relationships that result in the best patient outcomes possible,” said WELL CEO Hamed Shahbazi in a press release.

Freeman said the announcement is likely to be the first of many this year for WELL, given the company’s strong balance sheet and stock price. Freeman called WELL’s accrual of clinic infrastructure and physicians a very efficient capital deployment strategy. The analyst said WELL has a strong history of acquiring break-even clinics, overlaying its top-quality, physician-enabling tech stack and within one or two years lifting EBITDA margins to above ten per cent.

“Following its 1Q23 earnings, we were impressed by WELL’s capacity to drive powerful growth across its diverse business units in the absence of M&A, but we did, however, anticipate primary care-focused M&A to pick up through the balance of the year given attractive opportunities in-market,” Freeman wrote. 

“This is exactly the sort of deal we wanted to see to start off WELL’s summer of M&A,” he said.

The five MCI clinics are WELL’s first in Alberta, where the company previously had exclusively operated executive health practices. Noting that WELL now has primary clinics in Alberta, BC, Ontario and Quebec, Freeman spoke of WELL’s longer-term vision of creating local and province-wide clinic ecosystems which see primary healthcare practices having the potential to refer patients to specialized providers in areas such as diagnostics, sleep and cardiology) and then follow these patients with telemedicine services and other tech offerings.

“The more diverse WELL’s network grows, the more its patients stay in-network through their healthcare journey,” he said.

By the numbers, Freeman is forecasting WELL’s revenue to go from $569 million in 2022 to $700 million in 2023 and to $795 million in 2024, while adjusted EBITDA is forecasted to go from $105 million in 2022 to $117 million in 2023 and to $133 million in 2024.

With the update, Freeman reiterated an “Outperform” rating on WELL and one-year target price of $8.50 per share, which represented at press time a projected return of 85 per cent.

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