Shares of American Well(NYSE: AMWL) charged out of the gate on Friday, climbing as much as 24.5%. As of 12:04 p.m. ET, the stock was still up 10.6%.
The catalyst that sent the telehealth software company higher was news of a major government contract win, which is a huge vote of confidence for its telehealth platform.
Why the U.S. Defense Health Agency chose Amwell
In a press release that dropped after the market close on Thursday, American Well (Amwell) revealed that it -- along with Leidos(NYSE: LDOS) -- was chosen by the U.S. Defense Health Agency (USDHA) and "awarded a next-generation contract to provide a hybrid care technology platform designed to power the 'Digital First' transformation of the Military Health System (MHS)."
Specifically, the USDHA selected the company's comprehensive hybrid care platform, Amwell Converge, to replace the current Military Health Systems Video Connect system. The contract also covers a broad cross section of Amwell's automated care programs, which "have a proven track record of helping deliver better health outcomes."
As the lead defense contractor, Leidos Partnership for Defense Health will help implement the selected technology.
Is Amwell Stock a buy?
If all the necessary benchmarks are met, the contract's total value will be $180 million over the 22-month implementation period. There was no indication of the financial breakdown between the two companies, so we don't know how many millions of dollars are at stake for Amwell. For context, Amwell generated second-quarter revenue of $624 million and, for the full year of 2022, delivered revenue of $277.2 million. So, its portion of the $180 million payout could move the needle.
Perhaps more importantly, it represents a huge vote of confidence that Amwell's platform was chosen to support the 9.6 million military users, which includes active-duty service members, family members, retirees, and health professionals using its system.
That said, with a market cap of just $293 million, Amwell is a riskier proposition than larger healthcare providers, and its stock has fallen 96% since its debut at the height of the initial public offering (IPO) gold rush in late 2020. This could represent a lucrative opportunity but should be a small part of a diversified portfolio. Investors should heed the old caveat, "Let the buyer beware."
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Danny Vena has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
