Competition Bureau investigation into WELL Health is not a concern, Stifel says

Stifel analyst Justin Keywood, in a Nov. 25 update, maintained his “Buy” rating and C$9.00 target on WELL Health Technologies (WELL Health Technologies Stock Quote, Chart, News, Analysts, Financials TSX:WELL) following a Globe and Mail report that the Competition Bureau has opened an investigation into the company’s AI transcription and electronic medical records software.

Keywood said the review stems from WELL’s April acquisition of a majority stake in HEALWELL AI alongside the close of the Orion Health transaction. A pre-merger notification was ultimately filed in June.

He said that “an earlier filing could have avoided the investigation,” but argued the Competition Bureau’s market-share concerns “are misguided,” pointing to WELL’s roughly 17% EMR share, well behind Loblaw’s Accuro system at about 31% and Telus at roughly 45%.

WELL’s AI transcription tools reach fewer than 1,000 doctors across a national addressable market of 100,000, and, in his view, the transactions “did not materially expand” WELL’s position.

He said that “an earlier filing could have avoided the investigation,” but argued the Competition Bureau’s market-share concerns “are misguided,” pointing to WELL’s roughly 17% EMR share, well behind Loblaw’s Accuro system at about 31% and Telus at roughly 45%.

He said the investigation will likely increase legal costs and create headline risk, which pressured the stock, but does not change his fundamental view of the company.

Keywood added that the regulator’s past enforcement record lowers the likelihood of a significant penalty.

“We are not concerned by the Bureau’s investigation,” he said, citing both the limited scope of the allegations and the fact that the Competition Bureau has not issued monetary penalties to Canadian healthcare firms under abuse-of-dominance inquiries. He referenced the 2016 McKesson/Rexall review as the closest analogue but said a divestiture outcome appears “highly unlikely.”

Keywood said the Competition Bureau’s interest is “surprising” given the small size of WELL’s AI transcription and EMR segment, about $2-million in annual revenue on total sales of $1.4-billion, and the company’s longstanding relationships with Canada Health Infoway and federal agencies that have supported its technology initiatives.

Keywood said WELL’s acquisition model, buying underperforming clinics and improving margins to the 10%–18% range using operational and technology upgrades, remains central to the investment case.

WELL operates roughly 200 primary-care and related clinics, holds close to 20% EMR market share, and has cybersecurity and U.S. telehealth exposure. Keywood views the company as a consolidator within health-tech, similar in model to Canadian software acquirers such as Enghouse, Descartes and Constellation Software.

His C$9.00 target is based on a DCF using an 8% WACC and 3% terminal growth rate.

In an Oct. 22 report, Keywood said WELL should generate C$186.6-million in Adjusted EBITDA on C$1.41-billion of revenue in fiscal 2025.

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

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