Raymond James - cantechletter.com - 68% upside Look for digital healthcare provider WELL Health Technologies (WELL Health Technologies Stock Quote, Charts, News, Analysts, Financials TSX:WELL) to open up the M&A tap over the next couple of quarters, says Raymond James analyst Rahul Sarugaser, who maintained an “Outperform” rating on WELL in a Monday report.
Vancouver-based WELL Health delivered its first quarter 2023 financials on Friday, featuring revenue up 34 per cent year-over-year to $169.4 million and adjusted EBITDA up 14 per cent to $26.7 million.
“Q1-2023 was an exceptional quarter that exceeded all expectations and demonstrated the strength, depth and quality of our technology enabled care delivery platforms,” said CEO Hamed Shahbazi in a statement.
“Our profitability and cashflow profile continue to be robust, as we achieved $10.8 million in Adjusted Free Cash Flow to shareholders in Q1-2023, notwithstanding elevated interest fees. Given the strength of our outlook, we are pleased to increase revenue guidance again as we have for each of the past five quarters,” he said.
WELL said the Q1 was its 17th consecutive quarter of record revenues, while the company increased its outlook for 2023 and is now calling for revenue of $690-$710 million, with a midpoint representing a 23 per cent increase over 2022. Adjusted EBITDA is being projected to be “more than” ten per cent over 2022 levels.
In April, WELL launched its AI Investment Program, which provides capital and other support from WELL’s ecosystem to help develop AI applications for Canadian healthcare, with WELL aiming to make a minimum of ten AI-related investments of $250K each. Then, last week, the company launched WELL AI Voice, an ambient scribe product to help reduce the administrative burden on health professionals.
Looking at the Q1, Sarugaser said WELL posted strong, mostly organic growth across all its business segment, with more growth expected over the rest of the year. The $169.4 million topline was a beat of Sarugaser’s estimate at $159.7 million and the consensus call of the same, while adjusted EBITDA at $26.7 million was also a beat of the analyst’s call at $25.0 million and the Street at $24.9 million.
Sarugaser said on the earnings call management moved up its timeline to hit a $1 billion revenue run rate from within three years to, with the aid of focused M&A, substantially sooner.
“We’re impressed by WELL’s capacity to drive powerful growth across its diverse business units in the absence of M&A. We do believe, however, that WELL will become active on the M&A front in the near-term,” Sarugaser wrote.
“On the 4Q22 call, WELL discussed a very active FY23 for M&A, focused on small primary care clinic networks in Canada and mid-sized clinic networks in the US to bolt onto CRH. Observing very little M&A activity precipitating in 1Q23, and hearing management’s tenor around the strength of its pipeline, we see a good potential for WELL to open the M&A tap during the next quarter or two, escalating guidance in concert,” he wrote.
For his part, Sarugaser is expected WELL’s topline to go from $569 million in 2022 to $671 million in 2023 and to $743 million in 2024. EBITDA is expected to move from $105 million in 2022 to $114 million in 2023 and to $136 million in 2024.
With his “Outperform” rating, Sarugaser maintained a 12-month target of $8.50, which represented at press time a projected return of 68.7 per cent.
Disclosure: Nick Waddell and Jayson MacLean own shares of WELL Health Technologies and WELL is an annual sponsor of Cantech Letter.