12-Month Target: C$7.00
Superior operational and financial execution aided by a resilient business model. WELL has generated 15-20% organic growth in each quarter, F2022-to- date, driven by the exceptional growth at its U.S.-based Circle Medical and Wisp businesses that we expect to continue (>US$100mm in ARR at Q3/F22, up 124% y/y organically, with positive Adjusted EBITDA). The upcoming changes to the payment model for family doctors in B.C. should also help bolster its organic growth. With Adjusted EBITDA margins of close to 20%, WELL has also achieved the Rule of 30 for the last five quarters. We expect WELL to continue delivering solid double-digit organic growth and margins and maintain its Rule of 30 posture in C2023, while also executing on (highly) accretive M&A opportunities.
As well, given the resilience of healthcare spending, which has increased each year since 1960 in the U.S. (according to CMS) and 1975 in Canada (according to CIHI), even during recessions, we believe the company is well-positioned to outperform in a potential recessionary environment.
Valuation at historic lows. Despite generating superior organic growth and margins, WELL is trading at just 1.5x EV/Revenue and 8.6x EV/EBITDA (C2023), well below its healthcare peers at 2.5x and 19.5x, respectively. At 1.6x EV/Revenue (NTM), WELL is trading at historic lows last seen in early 2019, when it just had 19 primary clinics in B.C. and was unprofitable, thereby presenting an attractive buying opportunity for long term investors in our view.