As the Cano Health Merger Approaches, JWS Stock Looks Like a Bargain

Cano Health is going public in a SPAC merger with Jaws Acquisition (JWS) that values it at $4.4 billion. The transaction is about to close. What's Cano's stock forecast after the JWS SPAC merger date? Is the stock a good buy now?

After the transaction closes, JWS SPAC investors and sponsors will own 19 percent of Cano, while PIPE (private investment in public equity) investors will own 17 percent. JWS SPAC stock is up 45 percent from its IPO price of $10 per share. However, the stock is still down 17 percent from its peak.

JWS shareholders are expected to vote on Jun. 2, and the companies hope to close the business combination on Jun. 3. Cano stock will trade under the ticker symbol “CANO” after the merger with JWS is completed.

Under the terms of the merger, Cano will receive about $1.49 billion in cash proceeds to pursue its growth plans. The cash includes $690 million held in trust by JWS and $800 million in PIPE at $10 per share. PIPE investors include BlackRock, Fidelity Management, Third Point, and Maverick Capital.

Existing Cano shareholders are set to own 65 percent of the combined entity when the proposed transaction closes. The combined company will be led by Cano’s founder and CEO Dr. Marlow Hernandez.

JWS stock has traded at between $9.95 and $17.43 since its debut. It’s currently 46 percent above its low and 17 percent below its peak. As Wall Street hasn’t started tracking the stock, analysts haven't yet given a target price. However, Cano's stock forecast looks bullish.

Founded in 2009, Cano Health offers value-based care to over 103,000 members through a network of 564 primary care physicians across 14 areas in Texas, Nevada, Florida, and Puerto Rico. The company expects to reach 300,000 members by 2023. If forecasts sales of $1.45 billion in 2021, and sees them growing by 56 percent in 2022 and 39 percent in 2023. The company also expects adjusted EBITDA of $195 million in 2023, compared with $70 million in 2020.

Cano stock is likely to rise after the proposed merger closes, thanks to the healthcare company's robust growth outlook. Value-based care will become more popular over time and could get a boost under the Biden administration. The Medicare Advantage market is expected to grow to $590 billion in 2025 from $270 billion in 2019.

JWS assigned Cano a pro forma implied equity value of $4.7 billion. Meanwhile, at JWS’s current stock price, Cano is valued at around $6.8 billion. After adjusting for its pro forma $535 million cash and $279 million debt, it would have a pro forma EV (enterprise value) of $6.5 billion.

Based on this EV and Cano’s projected total revenue, its valuation multiples for 2021 and 2022 are 4.5x and 2.9x, respectively. The company’s 2023 EV-to-total revenue multiple of 2.1x looks much more attractive. Considering that peers Oak Street Health and 1life Healthcare are trading at next-12-month EV-to-sales multiples of 9.6x and 9.5x, respectively, Cano stock looks like a good buy.