WELL Health is still my top pick, TD’s Kwan says

The stock has been on fire of late, but TD analyst David Kwan says there is still money to be made on WELL Health Technologies (WELL Health Technologies Stock Quote, Chart, News, Analysts, Financials TSX:WELL).

As reported by the Globe and Mail December 9, Kwan reiterated his “Buy” rating and price target of $8.00 on WELL.

“Despite its almost 70-per-cent return year-to-date (up 60 per cent in the last 3 months alone), we think there is still solid upside to the stock, aided by several key near-term catalysts with the potential sale of Wisp and/or Circle and the WPS spin-out,” the analyst wrote. “We expect total/organic growth to remain strong with improving margins/FCF in 2025, which should help drive a continued positive re-rating.”

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.”

“We expect WELL to continue its highly accretive and capital efficient clinic roll-up strategy in Canada,” Kwan added. “The potential sale of Wisp and/or Circle should help simplify the story, reduce its modest leverage, and refocus investors on the very attractive growth opportunity in Canada, given favourable reimbursement trends and supply/demand dynamics. At 13.3 times EV/EBITDA (C2025E), a more than 25-per-cent discount to the peer group average, we do not believe its valuation properly reflects its superior execution and competitive position, expected further margin/FCF improvements, the potential value creation from the sale of Wisp and/or Circle and WPS spin-out, and the hidden value from its HEALWELL investment.”

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