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The health tech sector has had its share of ups and downs over the past couple of years and stocks are now off their highs. This presents both buying opportunities for investors and potential pullback targets for other interested companies, according to Stifel GMP analyst Justin Keywood, who on Thursday delivered a sector report to clients pointing to three names worthy of consideration. particular attention.

It’s been a period of ups and downs for healthcare stocks in general and healthcare tech in particular, a space that was a fan favorite at the start of the pandemic as investors looked to up-and-coming names. which served the growing interest in ideas like the virtual and digital platforms first.

But this trend has seen a major setback this year. According to the numbers, the S&P/TSX Healthcare Index is down a whopping 47% year-to-date compared to the broader S&P/TSX, which is down 13%.

Still, Keywood says lower valuations in the space are now attracting corporate interest in mergers and acquisitions, with the aim of acquiring good, recession-proof healthcare assets at an attractive price. Keywood pointed to Telus’ announcement in June to acquire mental health and wellbeing platform LifeWorks as a potential harbinger of things to come.

“The recently announced $2.8 billion transaction of LifeWorks by Telus and 1Life Healthcare’s participation in several potential suitors help illustrate a developing trend and support better valuation of the sector. We have no knowledge of any M&A negotiations or discussions, but we are highlighting names from our universe of 22 covers that we believe may have exit potential,” Keywood wrote.

On that front, Keywood pointed to the omnichannel digital health company WELL health technologies (WELL Health Technologies Stock Quote, Charts, News, Analysts, Financials TSX:WELL), Mental Health and Wellness SaaS Platform LifeSpeak Inc (LifeSpeak Stock Quote, Charts, News, Analysts, Financials TSX:LSPK) and pharmaceutical consolidator CareRx (CareRx stock quote, charts, news, analysts, TSX Financials: CRRX).

Regarding WELL Health, Keywood said there were four key areas in its investment thesis, highlighting WELL’s potential to acquire and/or build more health clinics to strengthen its platform, its demonstrated success in adding valuable SaaS revenue through mergers and acquisitions, its ability to reap the rewards now benefits from over one million patient visits on an annualized basis to test and further develop its healthcare technology and potential of organic growth at WELL.

On organic growth, Keywood wrote, “WELL can deploy its acquired and developed technologies across Canada and the United States, which could accelerate organic growth. The company can also increase the organic growth of its clinics by adding additional doctors to fill the extra capacity available which now includes virtual visits.

“WELL has created a unique business model with approximately 20 primary care and related clinical assets providing in-person and telehealth services, an EMR market share of approximately 15% in Canada, significant cybersecurity infrastructure and recently announced entry into telehealth in the United States. market. We also see WELL as an early-stage consolidator, similar to Enghouse, Descartes and Constellation Software but focused on health technologies. The M&A pipeline continues to be broad with 100 assets being evaluated and approximately 10 in the LOI stage,” he said.

Next, Keywood said Telus’ purchase of LifeWorks shows a general interest in entering the employee benefits and wellness space, particularly with a focus on mental health services. To that end, LifeSpeak offers a single, lightweight, 100% virtual one-to-many platform at a relatively low cost to employers, according to the analyst. The stock crashed in May and is now down 81% in the past three months, with Keywood signaling some confusion surrounding LifeSpeak’s contract renewal process with its biggest client.

But the pullback has put LSPK at attractive sales of 2x 2023 versus its peers at 5x, Keywood said, as the company continues to expand in a sector (automated mental health services) that is currently under heavy pressure on the staff.

“LifeSpeak customers and HR experts we spoke with rate the platform an average of 9/10, demonstrating customer buy-in, but the platform was also mentioned as unique with no competitive alternative comparable. Exceptional customer service was also described and this has become increasingly critical as mental health staffing shortages persist. Combined with strong margins at nearly 40% EBITDA in 2021, we see a lot to like about LifeSpeak as global expansion initiatives intensify and an M&A program begins,” wrote Keywood.

Finally, with CareRx, Keywood believes the company is a potential target due to its current valuation at 0.7x sales and 7x EBITDA in a pharmaceutical space where assets have sold for 2x sales and more. The analyst said CareRx is the leader in the Canadian institutional pharmacy industry for long-term care and retirement homes with a market share of approximately 22%, where approximately 69% of the market is still very fragmented.

“A takeover of the business could result in a large market share with plenty of room for growth. At the same time, it opens up the possibility of optimizing the capital structure of the company, which currently has a debt of $80 million with interest rates of 7.5% to 10.5%,” Keywood wrote.

“While the stock has fallen to 2020 levels, the company has grown its market share by 10% over the past two years, from $164 million in sales to $378 million forecast for 2022. The recent acquisition of Rubicon Pharmacies in Canada at 12 times EBITDA also promotes better valuation. Should no mergers and acquisitions materialize for CareRx, we still see a strong investment case at 7x EBITDA, given the long-term strategic nature of the asset, its dominant market share and its secular tailwinds,” he said.

WELL health technologies

Market cap: $708.8 million

Stifel GMP Rating: “Buy”

Target Price: $13.50

Expected return on 12-month target: 315%

talk about life

Market cap: $57.9 million

Stifel GMP Rating: “Buy”

Target Price: $2.75

Expected return on 12-month target: 133%


Market cap: $193.0 million

Stifel GMP Ranking: “Buy”

Target Price: $7.50

Expected return on 12-month target: 81%

Disclosure: Jayson MacLean and Nick Waddell own stock in WELL Health Technologies and WELL Health is an annual sponsor of Cantech Letter.