WELL Health is “misunderstood” and undervalued, RBC says

Yet another analyst thinks WELL Health Technologies (WELL Health Technologies Stock Quote, Chart, News, Analysts, Financials TSX:WELL) is undervalued.

On February 6, RBC Capital Markets analyst Douglas Miehm initiated coverage of WELL with an “Outperform” rating and price target of $5.50, implying a return of 50 per cent at the time of publication.

The analyst said he thinks there is an opportunity for investors right now because WELL Health is “largely misunderstood”.

“We are initiating on WELL Health with an Outperform rating and $5.50 price target,” Miehm said. “We see WELL as a complex, largely misunderstood company and believe the market underappreciates the long-term value creating opportunity in transforming CDN primary/ Dx care, as underscored by our strong forecasted ROIC and IRR metrics for recent acquisitions. In the US, WELL should benefit from high organic growth (20%+) businesses, Circle and Wisp, and high-margin CRH. As investors start to grasp the potential opportunity available to WELL, we believe the shares will strengthen and outperform peers.”

Miehm thinks WELL will post Adjusted EBITDA of $129.7-million on revenue of $926.0-million in fiscal 2024. He expects those numbers will improve to Adjusted EBITDA of $153.2-million on a topline of $996.6-million the following year.

The analyst quantified the opportunity that WELL addresses and said it is significant in both Canada and the United States.

“In Canada, WELL has only 1–2% primary care/Dx share of this recurring, government-funded (~5% organic growth), but particularly inefficient ~$30B market. As such, each 0.5% share gain equates to ~$150MM in incremental revenue. In WELL’s U.S. omnichannel businesses, we see Circle and Wisp contributing 20%+ organic revenue CAGRs to 2025, he wrote. “We view its CRH business as a high-margin, low-organic-growth operation that could grow its 14% market share to >20% through further acquisitions (each 1% share = ~$20MM). Beyond those announced, we do not include acquisitions in our outlook, suggesting material upside to our forecasts.”

Miehm explained how he arrived at his target price.

“Our $5.50/sh price target is based on an average of a SOTP analysis and a longer-term DCF. At the current $3.66/sh, WELL trades at 1.5x EV/Revenue, 10.2x EV/EBITDA, and 12.5x EV/EBITDA to SH on 2024 estimates,” he explained. “Our $5.50 target equates to 2.0x, 13.7x, and 17.1x to SH and reflects applying, on balance, discounted multiples to comps, depending on expected competitive positioning, opportunity, and risks.”

Disclosure: Nick Waddell is a shareholder of WELL Health Technologies and the company is an annual sponsor of Cantech Letter.