The performance in Teladoc Health (NYSE:TDOC) stock has been unimpressive over the past year. After a euphoric listing, investor’s focus has shifted to the company’s ability to deliver high-growth and robust cash flows. Uncertainties on that front have resulted in a 73% decline in the last 12-months.
In my view, TDOC stock looks interesting after the massive selloff. As such, contrarian positions might be considered at current levels.
If we look at the broader opinion of analysts, the view seems similar. According to CNN Business, the stock has a median 12-month forward price target of $131 from 24 analysts. This equates to 87% upside potential from Teladoc’s current levels.
As a quick overview, Teladoc provides virtual healthcare services and solutions. The company provides virtual access to various medical requirements. With that in mind, let’s discuss the reasons to be positive and expect a rally from oversold levels.
Expect TDOC Stock to Rally
Starting with a top-down approach, let’s first talk about pertinent industry tailwinds. According to estimates, the global telehealth market is expected to grow at a CAGR of 32.1% through 2028. The market size is expected to touch $636.38 billion in 2028.
Governments in many countries are supporting growth with new policies and favorable reimbursement guidelines. In addition to providing quality health, virtual healthcare services reduce medical costs significantly.
Further, many underdeveloped countries have constraints accessing quality healthcare services. Hence, the aim of some governments in these locations is to provide access in these locations through digital platforms.
With sustained growth for the industry, Teladoc seems well positioned to benefit. (And by extension, TDOC stock should also enjoy success).
Teladoc’s Large Client Base
The bullish long-term case for Teladoc gains additional muster given that it is already a dominant player in the industry. In fact, the company has a large client base of 76.5 million paid members in more than 12,000 companies as of January 2022.
This client base includes businesses that provide health plans, health systems, insurance and financial services. Despite the diminishing impact of Covid-19 on the healthcare industry in 2021, Teladoc was able to scale up paid memberships by 50% on a year-over-year basis. This is a clear indication of growing acceptance of the company’s virtual healthcare services.
Strengthening Through Strategic Mergers and Acquisitions
The company is also growing through several strategic mergers and acquisitions. In 2020, Teladoc merged with Livongo for a total consideration of $13.87 billion. The merger has enhanced the company’s ability to deliver differentiated care.
Further, the merger has helped Teladoc to offer integrated, comprehensive whole person solutions by bringing virtual health and chronic condition management together. The combined platform features the full range of health support available anytime, anywhere.
Other notable acquisitions include Consultant Connect for $56.3 million and InTouch for $1.1 billion. The acquisition of Consultant Connect will enable the company to provide advanced healthcare platform for professional-to-professional advice in the United Kingdom. The acquisition of InTouch will further strengthen its position in providing help for chronic conditions.
These deals should be accretive to earnings as it should amplify overall engagement retention. Inorganic growth is also likely to help the company expand its geographical footprint.
Consistently Growing Revenues
Teladoc has demonstrated a track a strong record of delivering consistent top-line growth. Total revenues have increased at a CAGR of 61.8% between 2018 and 2020. Patient visits have quadrupled to 10.6 million over the same period.
Management remains positive on member visits and revenues. For 2021, the company estimates total revenues of $2 billion, reflecting a growth of 85.6% on a year-over-year basis. Member visits are expected to increase 4.6%.
Between 2021 and 2025, Teladoc has guided for an annual revenue growth of 25% to 30%. This is expected to be supported by an increase in paid member visits coupled with growth in average revenue per member.
Any further acquisitions will help in boosting growth. The stock, however, seems to have discounted the point that top-line growth will be relatively lower as compared to the previous years.
Bottom Line on TDOC Stock
Teladoc is well-positioned to capture market share in the virtual healthcare industry. The company’s huge client base should keep the number of virtual visits robust. Further, significant cost advantages and favorable reimbursements support growth momentum. The company’s strategy to grow through various acquisitions and mergers should strengthen its position in international markets without having to incur huge costs.
The sharp price correction for TDOC stock is, therefore, an attractive investment opportunity for long-term investors.
On the date of publication, Sakshi Agarwalla 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.
Sakshi Agarwalla has more than eight years of experience writing equity research reports and preparing financial models for companies across various industries, as well as writing newsletters and financial articles. Recently, she assisted her Fund manager in executing trades, preparing weekly, monthly NAVs and writing newsletters. She has a postgraduate degree in finance and has completed CFA.
