WELL Health could unlock value with U.S. divestiture, Stifel says

Stifel analyst Justin Keywood says WELL Health Technologies (WELL Health Technologies Stock Quote, Chart, News, Analysts, Financials TSX:WELL) could unlock big value with the divestiture of some U.S. assets.

On June 18 in Toronto, WELL Health hosted its annual investor day, summarizing the progress that has brought it to nearly a billion dollars in revenue and highlighting the opportunities it sees going forward.

Keywood says WELL is trading at a discount and with a myriad of opportunities in the Canadian market and could free up a lot of cash to act on them.

“WELL has executed on 80 transactions, where the sum-of-parts could be worth more than the whole,” he wrote. “WELL detailed potential divestitures of U.S. assets, WISP and Circle Medical, not nearly reflected in current valuation, we believe. Circle Medical has grown from US$5m sales since its 2020 acquisition to a ~US$95mm run-rate. WISP has similarly seen rapid growth and focused in women’s health, with comp (HIMS) trading at favorable valuation.

In a research update to clients Keywood maintained his “Buy” rating and $10.00 price target on WELL.”

Keywood says the M&A pipeline remains robust for WELL.

“WELL still has a wide pipeline for M&A, particularly in healthcare services assets in Canada,” he wrote. “WELL highlighted an average of 300bps in EBITDA margin expansion achieved on M&A, including heavy technology implementation. WELL’s 24-asset pipeline currently, includes about half, related to absorption prospects, with only a nominal fee paid and as low as 0.02x sales. The other half are better margin-generating assets and could be acquired for 4x-8x EBITDA, by our math. WELL’s current leverage is ~2.7x or 3.5x with the convertible debenture but $55mm in FCF expected to be generated in 2024 could be used for M&A. Further, +$250mm of contributions from WISP/Circle Medical may finance future M&A.”

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