Acquisitions And IPO Will Unlock Canadian AI Healthcare Potential

Key Takeaways

• Strategic acquisitions and consolidation efforts position WELL for significant growth in revenue through synergies and global AI-driven healthcare solutions.
  
• An expanding M&A pipeline and the anticipated IPO of WELLSTAR are expected to drive substantial growth in revenue and profitability.
  
• Cash flow and profitability face risks from billing inefficiencies and delayed collections, while strategic asset divestments shift focus from the U.S. to Canadian market growth.

Catalysts

Operates as a practitioner-focused digital healthcare company in Canada, the United States, and internationally.

• The deferred revenue from Circle Medical and CRH due to regulatory and cybersecurity issues is expected to be recognized in future periods, leading to an anticipated significant increase in both revenue and adjusted EBITDA for fiscal 2025.
  
• The acquisition and consolidation of HEALWELL and its recent acquisition of Orion Health positions WELL to capitalize on synergies and scale benefits, supporting growth in revenue from global AI-driven healthcare solutions.
  
• WELL's strategic acquisitions and scaling of Canadian Clinics and WELLSTAR are expected to drive substantial organic and inorganic growth, benefiting revenue and adjusted EBITDA through an expanding M&A pipeline and robust Canadian market presence.
  
• The planned IPO of WELLSTAR is expected to enhance its capacity for growth by providing access to capital markets, potentially increasing revenue and profitability as additional acquisitions are completed leading up to and following the IPO.
  
• The favorable buy Canadian sentiment creates opportunities for WELL to capture new public sector contracts, potentially boosting future revenue as policymakers prioritize domestic healthcare technology solutions.

WELL Health Technologies Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming WELL Health Technologies's revenue will grow by 23.3% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 3.5% today to 2.8% in 3 years time.
• Analysts expect earnings to reach CA$47.4 million (and earnings per share of CA$0.35) by about May 2028, up from CA$32.6 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 54.3x on those 2028 earnings, up from 30.9x today. This future PE is greater than the current PE for the CA Healthcare industry at 30.9x.
• Analysts expect the number of shares outstanding to grow by 2.91% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.0%, as per the Simply Wall St company report.

WELL Health Technologies Future Earnings Per Share Growth

Risks

• Circle Medical's billing issues and the resulting regulatory investigation have led to a revenue reduction and deferred revenue recognition, impacting 2024 revenue and earnings negatively. This creates uncertainty and potential risk for future earnings if similar issues occur. [Earnings]
  
• CRH Medical’s reliance on Change Healthcare, which faced a cybersecurity attack, resulted in delayed billing and cash collections affecting 2024 revenue and earnings. This dependency and similar risks could pose financial risks in the future. [Earnings]
  
• The need to defer revenue for Circle Medical and CRH due to administrative and compliance issues highlights operational inefficiencies which could potentially disrupt cash flow and affect profitability in the future. [Net margins]
  
• The decision to divest U.S. digital assets, like Circle Medical, indicates a strategic shift, but the timing and valuation of these sales are uncertain, which could affect liquidity and capital allocation strategies for operations in Canada. [Revenue]
  
• There is a significant focus on the Canadian market for M&A and growth, but the U.S. asset disposals may limit immediate cash flows, creating reliance on future acquisition success in Canada which is subject to market conditions and integration risks. [Revenue]

Valuation

• The analysts have a consensus price target of CA$7.864 for WELL Health Technologies based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of CA$11.0, and the most bearish reporting a price target of just CA$5.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be CA$1.7 billion, earnings will come to CA$47.4 million, and it would be trading on a PE ratio of 54.3x, assuming you use a discount rate of 6.0%.
• Given the current share price of CA$3.98, the analyst price target of CA$7.86 is 49.4% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.