WELL Health could soon free up a ton of cash, Stifel says

In a March 9 report, Stifel Financial Corp. analyst Justin Keywood maintained a “Buy” rating and $9.00 target on WELL Health Technologies (WELL Health Technologies Stock Quote, Chart, News, Analysts, Financials TSX:WELL), saying potential divestitures of several U.S. assets could unlock more than $500-million in value and help simplify the company’s strategy.

Keywood’s latest installment of his “Inside the Doctor’s Office” research series focused on Circle Medical, WELL’s U.S. primary and virtual care asset, which is currently under a billing investigation and being considered for divestment.

Keywood estimates Circle Medical could generate $30-million to $35-million in sale proceeds, implying a 0.3x to 0.4x sales multiple, with WELL owning 71% of the business.

“We would view a divestment as a positive for WELL, given the billing investigation overhang, certain complexities at Circle and limited EBITDA contribution,” Keywood wrote.

The analyst previously highlighted potential divestments of CRH Medical Corporation and Wisp Inc., estimating values of $400-million to $600-million and $50-million to $65-million, respectively. Combined with Circle Medical, Keywood estimates the assets represent more than $500-million in potential divestiture value.

He added that selling U.S. assets could reduce or eliminate WELL’s debt and allow the company to focus more squarely on consolidating Canada’s fragmented healthcare clinic market.

“We reiterate our WELL thesis — the sum-of-the-parts is more than the whole — and divestment of U.S. assets would reduce or eliminate debt, with a clear use of proceeds for Canadian market share expansion and a very active M&A funnel,” Keywood said.

Keywood believes a more pure-play clinic consolidation strategy could also help lift WELL’s valuation multiple closer to peers. The company currently trades at roughly one times sales, compared with about 1.5 times sales for comparable healthcare platforms.

Vancouver-based WELL is Canada’s largest owner and operator of outpatient healthcare clinics and a multichannel digital health platform. It also provides EMR services and digital health tools to clinics across Canada, with operations in both Canada and the U.S.

Keywood outlined several pillars of the company’s investment thesis, including expanding its clinic footprint, acquiring software and digital health assets, using its patient network to test and deploy new technologies, and driving organic growth through expanded physician capacity and virtual care services.

Keywood forecasts WELL Health will generate $202.9-million in Adjusted EBITDA on revenue of $1.40-billion in fiscal 2026, improving slightly to $204.7-million in Adjusted EBITDA on revenue of $1.52-billion in fiscal 2027.

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

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