WELL Health’s Circle Medical inquiry is “financially immaterial”, Raymond James says

After taking a long look at the inquiry into Circle Medical’s billing practices by the U.S. Attorney’s Office, Raymond James analyst Michael W. Freeman says he believes the matter is “financially immaterial” to WELL Health Technologies (WELL Health Stock Quote, Chart, News, Analysts, Financials TSX:WELL)

On March 28, WELL announced that its subsidiary Circle Medical had received a request for the voluntary production of documents and information from the Civil Division of the United States Attorney’s Office for the Northern District of California investigating certain of its billing practices in the U.S.

Freeman says the lost market cap from this development and from the market downturn that has ensued, is now water under the bridge and says he expects WELL to come back stronger than ever.

“From here, we watch for WELL to actively resolve this matter, remediate deficiencies found, and deliver on its promise of strong underlying fundamentals,” the analyst wrote. “We note that news of the USAO inquiry came at a tough moment, one day before quarter-end (motivating selling to clear PMs’ slates for a new quarter) and a handful of days before material tariff volatility, likely driving an exaggerated market reaction. WELL stock appears to have found support at the $4.10 level (bouncing from this base twice during the last 6 trading sessions). While there remain many unknowns, and our analysis is done with a backdrop of extreme market volatility, we think WELL’s risk reward profile is looking more attractive here, particularly given the slate of good news delivered in the meantime, including WELL’s inorganic addition of $125 mln in run-rate Rev. (~$11 mln in aEBITDA) between Dec. 2024 and Feb. 2025, the exercise of its option for control of HEALWELL AI (triggering the consolidation of $160 mln in annual Rev., and growing), and what looks like a very strong 4Q24 as indicated by its recently published patient visit metrics (32% y/y growth to 5.7 mln in FY24).”

In a research update to clients April 8, Freeman maintained his “Outperform” rating and price target of $11.00 on WELL Health.

The analyst thinks the company will post Adjusted EBITDA of $127-million on revenue of $991-million in fiscal 2024. He expects those numbers will improve to Adjusted EBITDA of $159-million on revenue of $1.36-billion the following year.

Freeman gauged the impact of the whole matter.

“Based on our analysis of recent, relevant cases, we find that settlements made following the conclusion of USAO inquiries range from US$0.5-$60.0 mln, equating to an average 2.5% of total Rev. (0.2-6.0%). We conservatively estimate that the Circle matter will conclude with a settlement amount above the high end of this range (7.3%, triple the average %), resulting in a CA$10 mln fine. We, too, would consider this impact financially immaterial to the WELL business, broadly; at 3Q-end, WELL had CA$66 mln in cash and two open debt facilities: JPM (US$300 mln, US$162 mln drawn) and RBC (CA$140 mln + CA$60 mln uncommitted accordion, CA$$83 mln drawn).

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