Teledoc Health (NASDAQ:TDOC) became a Covid-19 pandemic favorite in 2020. Barely a year later, when the stock peaked at $308 earlier this year, TDOC stock faces tremendous headwinds. Momentum investors moved on, leaving Teledoc to prove its acquisition of Livongo will accelerate growth.
Teledoc has a long way to go. Impatient shareholders must have the willingness to wait for the turnaround to play out.
81% Growth Rate to Boost TDOC Stock
In the third-quarter, Teledoc posted total revenue growing by 81% year-over-year to $522 million. However, the firm lost 53 cents a share on a GAAP basis. The firm highlighted its new agreements with CVS Health (NYSE:CVS) and Centene Corporation (NYSE:CNC) in the period. They will provide Teledoc Health’s Primary 360 for their patients.
Chief Executive Officer Jason Gorevic said that CVS, through its Aetna Self-insured clients, rolled out Primary360. Those are virtual-first plan designs. As customers sign on to the offering, CVS will realize efficiencies.
Teledoc’s “whole-person” suite of capabilities enables health providers to care for patients in both physical health and mental health. Expect enrollment for care of multiple chronic conditions. This will accelerate Teledoc’s revenue growth in the coming years. Looking ahead for the rest of this year and into 2022, demand for such innovations will rise.
Teledoc will benefit from Centene and Aetna’s global rollout of its solution. Next year, CEO Gorevic said that the company expects its suite of products will have a meaningful impact on overall financials.
Opportunity
Teledoc expects revenue in the range of $536 million to $546 million in the fourth quarter. While it will lose between 73 cents and 53 cents, the improved pipeline is a positive tailwind. For example, the company faces slow growth as it enters international markets. This is offset by strong growth in the hospital and health system markets. If Teledoc dominates the Chronic Care solution offerings with no meaningful competition, that segment will add around $2.6 billion in revenue next year.
Teledoc’s transformation of the healthcare experience will only strengthen its moat. It is disrupting the physical delivery system in healthcare. As medical providers integrate Teledoc’s system, data collection deepens. This gives Teledoc and its customers a rich set of data analyses. From there, they may further transform the primary care experience for the better. Patients get better primary care and favorable health outcomes.
Investors should expect Teledoc to post strong growth from the Primary360 product. In addition, myStrength Complete, launched on May 11, 2021, will enrich its digital solutions. Health providers may provide things like dialectical behavioral therapy and cognitive behavioral therapy while Teledoc connects the network of expert psychologists and Master’s level social worker therapists and psychiatrists. No other systems provider offers anything like this.
Risks of TDOC Stock
Teledoc customers may find the savings are not big enough to justify further investments, however, it will need to work more closely with them to identify the product gaps. It will also need to increase spending on research and development. As it innovates its product, it will address efficiency shortfalls customers face.
Teledoc’s stock score is fair. According to Stockrover, TDOC stock scores slightly higher on quality, compared to value and growth. The Livongo acquisition is a drag on the balance sheet. Plus, the sales team’s productivity needs to improve — as staff return to the office, Teledoc will realize a stronger selling cycle. After educating the brokers pays off, expect quality and growth scores to increase from here. Teledoc’s value score is 55/100. This is a typical number for a growth company. Ideally, its growth score rises to further justify the stock’s premium relative to the S&P 500.
Fair Value
12 analysts rate Teledoc as a stock to buy, compared to nine who rate it as a hold. Per Tipranks, the average price target is $169.48 and ranges from $125 to as high as $215.
The stock market is unforgiving to health information services stocks that lose money. The sooner Teledoc reaches break-even profits, the sooner the stock may re-build an uptrend.
Shareholders who think Teledoc stock will trade in a $120 – $160 trading range could write covered calls. Option sellers would earn an income from holding the stock. They will only get called away if the stock trades above the exercise price.
Your Takeaway
Teledoc has almost the highest market capitalization in its industry. Only Veeva Systems (NYSE:VEEV) is bigger. The company’s integration of Livongo and its staff will take time to progress. By next fiscal year, Teledoc’s integration of Livongo’s features in its products will pay off. More customers will buy its suite of products, lifting revenue.
As Teledoc gets closer to profitability, its stock will break out to the upside.
On the date of publication, Chris Lau did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Chris Lau is a contributing author for InvestorPlace.com and numerous other financial sites. Chris has over 20 years of investing experience in the stock market and runs the Do-It-Yourself Value Investing Marketplace on Seeking Alpha. He shares his stock picks so readers get original insight that helps improve investment returns.
