WELL Health Technologies wins price target raise at Beacon

Following news of a new spinoff, Beacon Securities analyst Gabriel Leung has raised his price target on WELL Health Technologies (WELL Health Technologies Stock Quote, Chart, News, Analysts, Financials TSX:WELL).

On December 12, WELL announced that it had rebranded its subsidiary WELL Provider Solutions Group into a entity called WELLSTAR that it will spin off. Concurrent with the news was the announcement of a $50.4-million private placement and the closing of the acquisition of two healthcare tech companies.

“A pure-play SaaS and technology leader or ‘star’ is born,” WELL CEO Hamed Shahbazi said. “WELLSTAR is a high-performance company and disciplined capital allocator in healthcare SaaS. “Today’s announcement and the incredible support we have received from some of Canada’s most esteemed technology investors demonstrates what we have been saying for some time now, which is that WELL’s technology platform is an exciting growth business which is set up to accelerate growth and drive higher margins for WELL on a consolidated basis. This strategic move reflects WELL’s commitment to unlocking shareholder value by surfacing the significant growth and market potential of its technology segment.”

Leung says there are many things to like about this development.

“Overall, we view today’s announcement as being positive for WELL Health,” he wrote. “Although it is a divesting a ~16% stake in WELLSTAR, we believe it has significantly reduce the cost of capital required to grow this part of the business organically and via M&A (as evidenced by WELLSTAR’s pro-forma valuation versus its acquisition valuation). Furthermore, we believe the associated increase in WELL Health’s stock (in anticipation of this strategic initiative, along with others such as the pending divestiture of WISP and Circle Medical) has also lowered its overall cost of capital for potentially growing its core clinical business. We also believe the WELLSTAR transaction solidifies our sum-of-parts valuation of WELL Health to which we had previously ascribed a 4x target multiple to the WELL Provider Solutions business.

The analyst says that this news warrants a price target raise for WELL.

“On the back of today’s news, we have made adjustments to our model to reflect the WELLSTAR transaction, along with the recently completed Jack Nathan (JHN – CA, NR) Canadian clinic transaction. The net impact is an increase to our target price on WELL Health to $9.00 (was $8.00), which is based on our sum-of-parts valuation. We reiterate our Buy rating.”

The analyst thinks WELL will post EBITDA of $127.8-million on revenue of $989.9-million in fiscal 2024. He expects those numbers will improve to EBITDA of $153.4-million on a topline of $1.09-billion in fiscal 2025.

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