WELL Health is our Top Pick in Tech, says PI Financial

Even with its solid share price gains over the first half of the year, WELL Health Technologies (WELL Health Technologies Stock Quote, Charts, News, Analysts, Financials TSX:WELL) is primed for a strong finish, according to PI Financial analyst Jason Zandberg, who nominated WELL as PI’s highest-conviction idea among tech-focused peers for the remainder of 2023.

In a Top Picks update on Monday, Zandberg said Canada’s tech sector had a respectable first six months of the year despite unflattering press coverage, which focused on high-profile layoffs at companies like Shopify and OpenText. Zandberg said PI’s Canadian tech sector index was up 23.4 per cent year-to-date but is still down from its peak in November 2021.

Artificial intelligence (AI) stocks have done very well, Zandberg noted, pointing to big names likes Microsoft and Nvidia but also to WELL, which made headlines recently with the launch of its Voice AI for physicians. Healthcare tech stocks as a subsector have performed positively, Zandberg said, as the global healthcare market is being disrupted and digitized by tech vendors like WELL.

“The use of technology is clearly required in Canada to improve efficiency of the system. Healthcare spending in the US reached nearly US$3.8 trillion in 2019, representing ~18 per cent of US GDP. The US spent ~US$11,500 per person on healthcare in 2019, more than any other country in the world. Another obvious region where technology can help to lower delivery costs and improve patient outcomes. WELL has operations in both Canada and the US,” Zandberg said.

Zandberg expects WELL to continue growing organically this year primarily from its Canadian Primary Care and SaaS businesses. On M&A, the analyst pointed to WELL’s advances this year made in enhancing its digitization prowess through acquiring MCI Medical Clinics in Alberta, CarePlus Management in the US and a strategic investment in Graphium Health LP.

“We also see potential for additional acquisitions for the remainder of the year which we believe will drive additional shareholder value,” he said.

Zandberg looked to WELL’s gastroenterology and anaesthesia subsidiary CRH Medical’s investment in Graphium as well as its CarePlus acquisition as examples of how WELL appears to be mirroring in the United States its “very successful” Canadian strategy of digitizing healthcare.

On valuation, Zandberg estimated WELL to be currently trading at an EV/EBITDA multiple of about 10.7x, which represents a discount to its Healthcare Tech peers which trade at an average multiple of 17.9x.

With the update, Zandberg reiterated a “Buy” rating on WELL and 12-month target of $7.75 per share, representing at press time a projected return of 81 per cent.

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