Is WELL Health stock a buy? (May, 2024)

Following the company’s first quarter results, Eight Capital analyst Christian Sgro thinks there is a lot of money to be made on WELL Health Technologies (WELL Health Technologies Stock Quote, Chart, News, Analysts, Financials (TSX:WELL).

On May 8, WELL reported its Q1, 2024 results. The company posted Adjusted EBITDA of $28.3-million on revenue of $231.6-million, a topline that was up 37% year-over-year.

“The first quarter of 2024 exceeded all expectations, showcasing the robustness and efficacy of our technology-driven care delivery platforms. We’re pleased to report that we have begun the year with an intense focus on enhanced profitability and capital efficiency and are proud to report a 10-per-cent year-over-year improvement in the all-important, free cash flow available to shareholders per share metric to five cents and even more excited to report that we’re guiding to a significant improvement in our free cash flow for the year to more than $55-million, reflecting a 30-per-cent YoY increase while we reduce yearly share dilution by a significant percentage from 2023 to the lowest it has ever been. The combination of these objectives will significantly accelerate our free cash flow per share and deliver enhanced shareholder value. Additionally, it is important to note that these results are fuelled by strong YoY organic growth of 13 per cent which includes our unique clinic absorption model, which has been and is expected to continue to be a major driver of Well’s future growth. Our clinic transformation team are recognized as industry leaders. They leverage best-in-class technology to help us achieve impressive net promoter scores (NPS) of over 80 per cent in our clinics demonstrating the high satisfaction and loyalty among our patients and providers and reflecting Well’s operational excellence.”

The analyst summarized the quarter, one in which he says there was momentum across all units of the company’s business.

“WELL reported strong first quarter results, laser-focused on cost optimization and per share metric improvement,” he wrote. “We like that the full year guidance increase exceeded Q1/24 outperformance and recent M&A contributions. In our view, this underscores the stability and upward trajectory of the demand environment. We are looking out for strategic updates within the US portfolio (monetization or other events), which we think will serve as a significant catalyst for WELL. Otherwise, an investor day in Toronto on June 18 will serve as the next key touchpoint as WELL delivers on its 2024 objectives”.

In a research update to clients May 9, Sgro maintained his “Buy” rating and price target of $10.00 on WELL. The analyst thinks WELL will post Adjusted EBITDA of $127-million on revenue of $972-million in fiscal 2024. He expects those numbers will improve to Adjusted EBITDA of $157-million on a topline of $1.06-billion in fiscal 2025.

“We are maintaining our BUY rating and C$10.00 target price based on 18x 2025E EV/gross adj. EBITDA. WELL currently trades at 7.8x, compared to US healthtech peers at 13.2x,” the analyst noted.

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