WELL Health Technologies’ opportunity is huge, Stifel says

Stifel analyst Justin Keywood maintained his “Buy” rating and $9.00 target price on WELL Health Technologies (WELL Health Technologies Stock Quote, Chart, News, Analysts, Financials TSX:WELL) in an Aug. 21 report, pointing to catalysts from divestitures, M&A, and the company’s fast-growing software platform.

“WELL has an ecosystem of over 80 healthcare assets, where there exists substantial value to unlock, as with WELLSTAR and the Canadian clinic network,” Keywood said. “We continue to expect improved valuation with the divestiture of one of the U.S. units ($50–60-million in expected sale proceeds) as it should simplify the business and core story. Near-term updates for these assets, including M&A, could act as catalysts.”

WELL Health is a multichannel digital health technology company and Canada’s largest owner and operator of outpatient health clinics. It also provides electronic medical records (EMR) services and digital health apps to doctors and clinics across Canada and operates facilities in both Canada and the United States.

Keywood highlighted WELLSTAR, a software platform that includes EMR, digital health apps, and billing/practice management tools enhanced with AI.

“The WELLSTAR is growing fast (~20% organic); current run-rate: $70-million sales/25% EBITDA margins. However, value (estimated $285-million) is buried within WELL’s broader ecosystem,” he said.

He added that WELL has a repeatable M&A program in Canada, rolling up underperforming clinics and boosting margins.

“WELLSTAR and the Canadian clinic network is of focus in the near-term with M&A to serve as catalysts and a potential looming U.S. divestiture as helping simplify the business, leading to higher valuation,” Keywood said.

The WELLSTAR segment has expanded from $25-million in sales in 2022 to its current $70-million run rate, with 80%–90% recurring revenue and EBITDA margins around 25%. Keywood said OceanMD, one of WELL’s digital health apps, is expected to grow sharply, supported by government procurement preferences for Canadian suppliers. He also pointed to Nexus AI, which includes Ambient Scribe functionality, as a fast-growing addition to the portfolio.

“Overall, we see the segment as growing 25%+ organically, driven by OceanMD,” he said, adding that a spinout or IPO could eventually unlock additional value.

Meanwhile, WELL holds just 1% market share in the Canadian primary and specialty care clinic market, which remains largely unconsolidated compared with the U.S. at 55%. The company generates about $300-million in sales and $40-million in EBITDA from its Canadian clinics and is targeting a tenfold expansion over the longer term.

“We see the potential for WELL to onboard/acquire 50–60 clinics/year with 10,000 estimated to currently be operating across the country,” Keywood said. “WELL also targets an expansion of its Canadian clinic network by 10x, longer term, suggesting a $3-billion revenue opportunity and $600-million in EBITDA at maturity.”

Keywood said that WELL Health should do $187-million in Adjusted EBITDA on revenue of $1,41-billion in fiscal 2025. He said those numbers will improve to $233-million on revenue of $1.58-billion in fiscal 2026.

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

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