“Just too low”: Raymond James raises target price on WELL Health

It’s a digital health stock that trades like a railroad and Raymond James analyst Michael W. Freeman has a problem with that.

On November 30, in a research update to clients, Freeman maintained his “Outperform 2” rating but raised his target price on WELL Health Technologies (WELL Health Technologies Stock Quote, Chart, News, Analysts, Financials TSX:WELL) from $8.50 to $9.00, implying a return of 137.5 per cent at the time of publication.

The analyst explained the reasoning behind his decision.

“The way we see it, WELL has established a path to dominating primary healthcare in Canada, carving out a defensible niche in U.S. specialty care, and leaning deep into AI-enabled care provision, all at the same time,” he wrote. “WELL’s diversified, fast-growing, and profitable platform offers investors well-insulated exposure to the North American healthcare provider sector, and we think this is worth well in excess of 1x FY24 P/S (where the stock is now).”

Freeman thinks WELL will generate Adjusted EBITDA of $113-million on revenue of $761-million in fiscal 2023. He expects those numbers will improve to Adjusted EBITDA of $131-million on revenue of $913-million the following year.

The analyst says the company’s most recent quarter provided more evidence of its momentum.

“WELL printed a very strong 3Q23, beating our and the Street’s estimates of Rev. and adj. EBITDA, driven mainly by solid outperformance across WELL’s US business, particularly CRH Medical,” he said. “WELL recorded ~1.6 mln patient interactions across its platform (6.4 mln run-rate; Exhibit 1) during the quarter, drove $205 mln in Rev., and produced $28 mln in adj. EBITDA ($23 mln for WELL shareholders; full numbers below). 3Q23 represented the first partial (~80%) quarter of Rev. contribution from CRH Medical’s CarePlus acquisition (anesthesia, medical staffing, billing services), which demonstrated to us that this business drives closer to $100 mln in annual Rev. (vs. $80 mln, as we had conservatively estimated), albeit at a lower EBITDA margin than the balance of WELL’s platform. We anticipate another solid sequential bump in Rev., as 4Q23 will see a full quarter of CarePlus Rev. (~$25 mln) and first Rev. contribution from Ontario, CA-based primary care clinics acquired from MCI/HEALWELL (>$5 mln), the sum of which supports the escalation of WELL’s FY23 Rev. guidance ($755-765 mln). Strong organic growth across the platform likely motivated the issuance of strong FY24 Rev. guidance (>$900 mln; we est. >$910 mln, or ~20% Y/Y growth) as well as CEO Hamed Shahbazi’s statement that WELL could hit a $1.0 bln run-rate by FYE24, nearly 1 year ahead of our prior estimates.”

Disclosure: Nick Waddell owns shares of WELL Health and the company is an annual sponsor of Cantech Letter.