There has been a big correction in the healthcare tech space, but Stifel GMP analyst Justin Keywood remains positive on WELL Health Technologies (WELL Health Technologies Stock Quote, Chart, News, Analysts, Financials TSX: WELL), maintaining a “Buy” rating and a target price of $ 13.50 / share for an expected return of 101.5% in an update to customers on November 10.
Founded in 2010 and based in Vancouver, WELL Health Technologies owns and operates a portfolio of primary health care facilities in Canada and the United States, while also providing digital electronic medical records (EMR) software services and services. telehealth, with nearly 30 clinics in which it operates. its own and more than 2,000 clinics in Canada to which it provides software solutions.
Keywood’s latest analysis comes after WELL Health released its third quarter financial results, which Keywood said demonstrated a new level of scale despite some of the market challenges it faced.
“The backdrop for WELL has been difficult, with US and Canadian healthcare tech peers experiencing a substantial correction this year by 60% on average,” Keywood said. “WELL made significant profits through CRH and MyHealth, prior to the correction, where most peers are not profiting and led to a much better stock performance, although still contested. “
WELL Health Quarterly Financial Data Marked With Revenue Of $ 99 Million, Marking 711% Year-Over-Year Change and 61% Sequential Growth, Beating Stifel’s Estimate $ 87 million and the consensus projection of $ 92 million, respectively. The year-over-year growth was driven by WELL Health’s previous acquisitions of CRH Medical and MyHealth, which accounted for approximately 68% of total revenue, but also strong revenue growth from virtual services.
The company reported about 583,000 total omnichannel patient visits in the quarter, a 139% year-over-year increase, with about half of those visits in person.
Meanwhile, WELL also reported its fourth consecutive quarter of positive Adjusted EBITDA at $ 22.3 million for a margin of 22.5 percent, which exceeds Stifel’s estimate of $ 18.1 million and a margin of 21 percent, as well as a significant improvement over the reported loss of $ 150,000. in the same quarter of 2020.
The company’s gross margin was also positive for WELL in the quarter, reaching 50 percent in the quarter compared to Stifel’s estimate of 45 percent, although EPS recorded a loss of 0.06. $ / share, which missed Stifel’s estimate of a profit of $ 0.05 / share due to share-based compensation expenses and one-time items.
“We could not have achieved such remarkable results without the healthcare professionals and clinicians who provide exceptional care every day and all the clinical, IT and corporate staff who support them every day,” said Hamed. Shahbazi, chairman and CEO of WELL in the company’s November 10 press release. “Our outlook is strong and resilient, with 93% of our revenues being recurring or very recurring. We look forward to continuing to generate strong results over the next few quarters, with sustained organic growth in the two main lines of business. “
The company’s successful quarter is in line with Keywood’s overall financial projections, as it forecasts revenue to grow from $ 50.2 million in 2020 to $ 291.7 million in 2021 for potential growth of 481% of year-over-year, followed by another projected peak to $ 440 million in 2022 for potential growth of 50.8% year-over-year.
Meanwhile, Keywood expects the company’s EBITDA to turn positive in 2021 at $ 58.5 million for a projected margin of 20.1%, with another expected jump to $ 97.1 million in 2022 for a projected margin of 22.1%.
From a valuation standpoint, Keywood predicts that the company’s EV / income multiple will drop from 35.1x reported in 2020 to 6x projected in 2021, followed by another decline to a projected 4x in 2022. During this time, it projects the EV / EBITDA multiple to first register in 2021 at 30.1x, then drop to 18.1x expected in 2022.
Keywood also expects the company’s earnings per share to turn positive in 2022 at $ 0.18 / share, with an opening PE multiple projection of 37.2x coming in 2022.
Overall, Keywood believes WELL Health is heading in the right direction, particularly with its stated 2022 goals of reaching the Rule of 30, where a rough combination of double-digit organic growth and around 20% margins. Adjusted EBITDA exceeds 30.
“We see the goal as supporting higher valuation, when combined with additional mergers and acquisitions and greater cash generation,” Keywood said. “WELL’s stock has recently come under some pressure with a broader health tech market reset, but continued profitable growth is unique and the stock price is expected to follow higher. “
Overall, the WELL Health share price is down 19.8% year-to-date, peaking at $ 9.23 / share on February 24 before rising and then falling again, although it has since bottomed out at $ 6.30 / share.
Disclosure: Nick Waddell and Jayson MacLean own shares in WELL Health Technologies and WELL is an annual sponsor of Cantech Letter.