The company has come from nothing to a billion dollar run-rate in just a few years. But are WELL Health’s (WELL Health Stock Quote, Chart, News, Analysts, Financials TSX:WELL) latest ambitions realistic?
Yes, says Raymond James analyst Michael W. Freeman.
On November 7, WELL reported its Q3, 2024 results. The company posted Adjusted EBITDA of $32.7-million on revenue of $251.7-million, a topline that was up 23%, year-over-year.
“Earlier this year we implemented a comprehensive cost-cutting program to support our 2024 operating plan, which is contributing to our record Adjusted EBITDA results this quarter and on a YTD basis,” CFO Eva Fong said. “In Q3-2024, we generated $16.2 million in Adjusted Free Cashflow(2) available to shareholders or 6.5 cents per share and our aim is to improve on this next year. Along with these savings and strong cash flows, we are on track to reduce annual share dilution to its lowest level this fiscal year, driven in part by shifting much of our earnout payment obligations to cash and transitioning some of our employee incentive programs to be more cash-based rather than relying on share-based compensation. Additionally, we plan to sustain our share buyback program as we haven’t issued any new shares since beginning this program and continue to favour cash vs shares, as our Board of Directors believes the current share price does not fully reflect the underlying value of the Company. I am pleased to report that WELL is in a strong financial position and is able to continue funding organic growth and future acquisitions through cash flows from operations.”
Freeman says the quarter beat his estimates, but says he was more focused on what happened during the conference call. On that call, WELL set a goal of achieving $4-billion in revenue with its Canadian clinics business by 2029. The analyst looked at how this might happen.
“During WELL’s conference call, the company set its ambitious $4 bln Rev. goal for its Canadian clinics business: a 10x increase from today’s $400 mln figure,” he wrote. “Even at the $4 bln level, WELL would account for only 7% of Canada’s estimated physician pay market in 2029. This plan was announced on heels of the broader business eclipsing $1 bln run-rate. Assuming WELL follows an M&A algorithm similar to that observed during the past year (1/3 absorption at ~0.02x TTM Rev., 2/3 acquisitions at ~0.4x TTM Rev.), we calculate that WELL could reach this goal through the deployment of ~$985 mln. (Or, WELL could deploy some amount less than this, run its clinic transformation process, and grow top-line toward its $4 bln Rev. goal.) Assuming adj. EBITDA margins similar to today’s, a $4.0 bln Rev. top-line could translate to >$550 mln in adj. EBITDA. To accrue material market share without undertaking a huge volume of small acquisition processes, we expect WELL will target larger patient services networks extant in the primary care, diagnostics, executive health, and allied health spaces. We expect the completion of one or both of Wisp’s/Circle’s strategic processes will correspond closely with WELL undertaking its first large-scale acquisition this segment.”
In a research update to clients November 8, Freeman maintained his “Outperform” rating and price target of $10.00 on WELL Health.
The analyst thinks WELL will post Adjusted EBITDA of $127-million on revenue of $986-million in fiscal 2024. He expects those numbers will improve to Adjusted EBITDA of $151-million on a topline of $1.13-billion in fiscal 2025.
Disclosure: Nick Waddell is a shareholder of WELL Health and the company is an annual sponsor.
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