WELL Health is a Buy, says Haywood

The deals keep coming from WELL Health Technologies (WELL Health Technologies Stock Quote, Charts, News, Analysts, Financials TSX:WELL), with the latest move being given the thumbs up by Haywood Capital Markets analyst Gianluca Tucci. In a Thursday update to clients, Tucci reiterated a “Buy” rating on WELL, saying the stock continues to be the one to own in the Canadian health technology space.

WELL Health announced on Thursday a new strategic alliance with health tech company MCI Onehealth Technologies which includes the acquisition of 11 MCI clinics in southern Ontario for $1.5 million. WELL said it will also lead a new round of investment in MCI which will focus the MCI business on its leading AI, Data Science and Rare & Complex Disease Detection platform.

The deal will bring over 130 physicians to the WELL portfolio, with the company expecting positive EBITDA from the group in 2024 and annual revenues of over $21 million.

“This is a major step for WELL and it’s all about the power of Artificial Intelligence and how it can help solve some of the most difficult disease detection and diagnosis problems healthcare providers and patients face every day,” said Hamed Shahbazi, Founder and CEO of WELL, in a press release. 

Also part of the deal, WELL will join the MCI Board of Directors and will hold an option to acquire up to 20.8 million Class A and Class B shares in MCI Onehealth.

Tucci said the MCI clinics WELL is acquiring were losing money, and thus, they will initially be an EBITDA drain, but the analyst argued that WELL has a positive track record of turning poor-performing clinics into profitable ones and he echoed WELL assessment that the aforementioned clinics should be contributing positive EBITDA in 2024 and forward.

“With the agreement closing Oct 1 and only a ~$5 million impact to 2023 revenues, we leave our upwardly biased estimates unchanged for now until its Q2/23 conference call in mid-August and view this announcement as positive and on strategy,” Tucci wrote.

“This deal reinforces our view that WELL is the name to own in Canadian healthtech – while many have come and gone, WELL continues to prove it is in a class of its own in operating profitable clinics with a technology led focus,” he said.

As to the broader primary healthcare industry in Canada, Tucci said it remains very fragmented, with thousands of medical clinics spread across Canada and many of them owned and managed by doctors who typically aren’t using modern-day technology solutions. The result is an industry that lags in terms of digitization and one that is ripe for disruption and “stands to benefit from an active consolidator that can help its technological and fragmentation problems,” Tucci said.

With the update, Tucci maintained a one-year target on WELL of $8.00, implying at press time a projected return of 70 per cent.

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