Our view: We are initiating on WELL Health with an Outperform rating and $5.50 price target. We see WELL as a complex, largely misunderstood company and believe the market underappreciates the long-term value- creating opportunity in transforming CDN primary/ Dx care, as underscored by our strong forecasted ROIC and IRR metrics for recent acquisitions. In the US, WELL should benefit from high organic growth (20%+) businesses, Circle and Wisp, and high-margin CRH. As investors start to grasp the potential opportunity available to WELL, we believe the shares will strengthen and outperform peers.
Key points:
Improving CDN clinics through digitization = high est ROIC/IRRs. As Canada’s largest primary clinic owner and leveraging its broad healthcare IT capability, we believe WELL is uniquely positioned to help transform and materially improve the currently inefficient provision of CDN primary and diagnostic (Dx) care. Previously, WELL has added >500bps in EBITDA margin, on average, to primary/Dx clinics post purchase, leading to strong ROIC metrics. In fact, our work suggests the recent MCI/Manitoba clinic acquisitions could generate ROIC of >30% in aggregate over time and an IRR of ~30%.
Significant growth opportunities available in targeted CDN and US markets. In Canada, WELL has only 1–2% primary care/Dx share of this recurring, government-funded (~5% organic growth), but particularly inefficient ~$30B market. As such, each 0.5% share gain equates to ~ $150MM in incremental revenue. In WELL’s U.S. omnichannel businesses, we see Circle and Wisp contributing 20%+ organic revenue CAGRs to 2025. We view its CRH business as a high-margin, low-organic-growth operation that could grow its 14% market share to >20% through further acquisitions (each 1% share = ~$20MM). Beyond those announced, we do not include acquisitions in our outlook, suggesting material upside to our forecasts.
Strong Revenue and EBITDA (to SH) outlook. The company has successfully grown its revenue from $50MM in 2020 to RBCe 2023 and 2024 revenues of $766MM and $926MM, respectively. From a 2022 level of $105MM and over the five-year period between 2022 and 2027, we forecast CAGRs for EBITDA and EBITDA to shareholders of ~13% and ~14%, respectively, as margins increase in WELL’s CDN Primary Care business and the higher- growth Circle/Wisp businesses.
Attractive valuation. Our $5.50/sh price target is based on an average of a SOTP analysis and a longer-term DCF. At the current $3.66/sh, WELL trades at 1.5x EV/Revenue, 10.2x EV/EBITDA, and 12.5x EV/EBITDA to SH on 2024 estimates. Our $5.50 target equates to 2.0x, 13.7x, and 17.1x to SH and reflects applying, on balance, discounted multiples to comps, depending on expected competitive positioning, opportunity, and risks.