WELL Health has big upside potential, says Stifel

Stifel analyst Justin Keywood reported on Thursday on the latest from Canadian health tech company WELL Health Technologies (WELL Health Technologies Stock Quote, Charts, News, Analysts, Financials TSX:WELL) and reiterated a “Buy” rating on the stock. Keywood said investors will want to own shares in WELL for both its M&A and organic growth potential.

WELL Health announced on Thursday that it has entered into a strategic agreement to acquire a portion of MCI Medical’s clinical assets in Ontario and that it will make a strategic investment in parent business MCI Onehealth Technologies. MCI currently has primary care and women’s health clinics in Southern Ontario as well as a technology platform with abilities in AI, data science and rare and complex disease detection.

WELL, which has primary care and related clinical assets in Canada and the United States as well as a 15 per cent electronic medical records market share in Canada along with cybersecurity and virtual healthcare assets, said the deal is expected to close in October of this year and will add over 130 physicians to the WELL family of now over 3,000 providers.

“We’re thrilled to enter into a number of agreements that result in a strategic alliance that will immediately position MCI OneHealth as a key national leader in the multi-billion dollar disease detection marketplace,” said WELL Founder and CEO Hamed Shahbazi in a statement.

As part of the deal, WELL said it will provide MCI with a bridge loan until the transaction closes, followed by convertible debenture financing, and that it will have the option to acquire up to 30.8 million MCI shares over time (MCI has about 54 million shares outstanding). WELL said it will also gain representation on MCI’s Board.

Commenting on the announcement, Keywood noted that since 2018 WELL has acquired over 40 assets at an average of 2.4x sales and 7.6x EBITDA.

“We view this agreement as part of WELL’s multi-pronged strategy of rolling up fragmented healthcare markets while investing in AI-driven products that enhance the patient journey,” Keywood wrote.

On his investment thesis for WELL, Keywood said recent transactions are adding valuable SaaS revenue and that the M&A pursuit has become much more valuable with changes in telehealth billing codes. He added that WELL’s growing clinic portfolio gives it a unique situation from which to develop and test new technologies before further expansion.

On its organic growth potential, Keywood said, “WELL can roll out its acquired and developed technologies across Canada and into the U.S., leading to possible accelerated organic growth. The company can also increase organic growth at its clinics by adding additional doctors to fill extra available capacity that now includes virtual visits.”

With his “Buy” rating, Keywood maintained a target price of $13.50 per share, representing at press time a projected return of 195 per cent.

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