Teladoc with Nobias technology: Down 51% From Its Highs, Is It Finally Time To Buy?
During 2020, Tele-medicine took the world by storm. The pandemic forced the digital medicine trend onto consumers, ushering in years of growth expectations in just months. And from a stock market standpoint, Teladoc (TDOC) was the major beneficiary of this trend, seeing its shares rise from roughly $80 at the beginning of 2020 to recent highs of $308. However, throughout 2021, we have seen TDOC experience significant weakness. Today, TDOC shares are trading for just $149.26, down more than 51% from their prior highs. Teladoc recently posted Q2 earnings and with that in mind, we wanted to take a look at the company’s results and see what the credible authors tracked by the Nobias algorithm had to say about the stock’s prospects moving forward.
In an article titled, “Is It Too Late to Buy Teladoc Stock?” that Nobias 5-star rated analyst, Zhiyuan Sun penned in late July, the author touched upon TDOC’s recent weakness, noting that it has been one of the worst performers in the healthcare sector during 2021, saying, “Investors are becoming increasingly skeptical of the company's ability to operate a digital consultation platform outside of pandemic conditions -- and they are not wrong to be dubious.” It’s clear that this 5-star rated analyst is not a fan of TDOC stock, due primarily for valuation reasons.
Sun highlighted the company’s continued success on the top-line; however, as he notes, TDOC is struggling to generate a profit. He wrote, “During Q1, Teladoc's total revenue increased by 183% year over year to $453.7 million as it facilitated 4.28 million sessions, up 109% from year-ago levels. It did not take many steps to improve its profitability, however, and its net loss widened to $199.6 million from Q1 2020's loss of $29.6 million.”
TDOC issued full-year guidance at the end of its Q1 report, putting a spotlight on its plans to generate approximately $2 billion via roughly 13 million digital visits. However, Sun believed that the company is going to have a hard time meeting those goals saying, “Unfortunately, Teladoc's peak performance is arguably behind it -- and the company may have significant problems meeting its guidance. Telehealth use has already fallen by 37% from its pandemic highs.”
Sun concluded his bearish piece saying, “In addition, its strategy of growing membership and visit count at a loss isn't helping its profitability situation. The stock looks extremely expensive at 11.8 times revenue. Investors who still want Teladoc in their portfolios would be well advised to wait for its valuation to come down even further before buying this healthcare stock on the dip.” Since he wrote his article, TDOC shares have been fairly flat, so the dip he’s looking for hasn’t yet occurred. But, Q2 earnings were posted on July 27th. In the immediate aftermath of those results, TDOC shares sold off some 10%. However, they quickly rebounded and another Nobias 5-star rated analyst, Keith Speights, who covers healthcare stocks at The Motley Fool, believed that the comeback was warranted.
In a recent article, Speights wrote, “With such a steep sell-off, you might think that Teladoc has big problems. However, the healthcare stock rebounded later in the morning on Wednesday as investors more fully digested Teladoc's news. My view is that this comeback is warranted. I believe that there was a lot of good news in the virtual care leader's second-quarter conference call that shouldn't be overlooked.”
Speights touched upon the company’s bottom-line woes saying, ‘Investors seemed to initially focus mainly on Teladoc's Q2 net loss of $133.8 million, or $0.86 per share. That result was a lot worse than the consensus analysts' estimate of a net loss of $0.56 per share. However, I think that Teladoc's bottom line isn't nearly as bad as it might seem.” He went on to explain that “Most of it stemmed from acquisition-related expenses related to Teladoc's purchases of Livongo Health and InTouch Health. Both are investments that I fully expect will pay off nicely for Teladoc over the long run”.. And, as Speights points out, “The rest of Teladoc's net loss was due to the company paying down debt. As with the acquisition-related expenses, my view is that the debt reduction is a story of short-term pain but long-term gain.”
Instead of focusing on earnings-per-share, Speights says that there are other, more important metrics that investors should be tracking when it comes to Teladoc’s performance. He wrote, “Perhaps the most important metric to watch is Teladoc's revenue per member per month (PMPM). In Q2, the company reported $2.47 in revenue PMPM. That's an increase of 142% over the prior-year period. It also reflected a 10.3% quarter-over-quarter jump.” When concluding his bullish piece, Speights said, “If I had to single out just one thing from Teladoc's Q2 update as a reason for buying the stock, it would be that the company's future appears to be brighter than ever.” He touched upon several statements that TDOC’s CEO, Jason Gorevic, made during the company’s quarterly report.
Gorevic mentioned that Teladoc’s new agreement with HCSC, which Speights points out is “the fifth-biggest health insurer in the U.S”, was “a landmark deal” for the company. Speights said, “The company expects the HCSC contract will drive growth beginning in early 2022 that will extend over a three-year period at least.” Gorevic also said that his company’s "late-stage pipeline at this point is 20% greater than it was last year."
In Speights view, this bodes well for growth, and ultimately, TDOC’s fundamentals eventually justifying today’s speculative valuation. In terms of Sun’s call that TDOC would have a hard time meeting its full-year guidance figures, during the Q2 report, TDOC management reaffirmed full-year revenue guidance, calling for:
Total revenue to be in the range of $2,000 million to $2,025 million.
EBITDA to be in the range of $(120) million to $(100) million.
Adjusted EBITDA to be in the range of $255 million to $275 million, including an estimated $20 million in lower expenses primarily related to Livongo devices as a result of the merger.
Net loss per share, based on 157.4 million weighted average shares outstanding, to be between $(3.60) and $(3.35).
Total U.S. paid membership to be in the range of 52 million to 54 million members and visit fee only access to be available to approximately 22 million individuals.
Total visits to be between 13.5 million and 14.0 million.
Nicholas Ward is a Senior Investment Analyst at Wide Moat Research. He has spent the last 8 years writing about the stock market at various publications, including Seeking Alpha, The Street, Forbes Real Estate Investor, Sure Dividend, The Dividend Kings, iREIT, Safe High Yield, and The Intelligent Dividend Investor.
In short, while the company is still struggling to generate profits, its client relationships continue to grow and while it’s unclear whether or not we have seen peak digital healthcare visits as society reopens and the world emerges from the COVID-19 pandemic, TDOC felt confident enough to maintain guidance for 2021 (at least).
While these two 5-star rated analysts provided compelling bull/bear arguments, overall, we see that the vast majority of the credible analysts that we track with the Nobias algorithm remain bullish on TDOC shares. Right now, 78% of credible authors have a “Bullish” opinion on the stock, with an average price target of $189.67, which implies upside potential of approximately 27%. Since the company’s Q2 earnings report, we’ve seen five different 5-star rated analysts update their price targets on TDOC shares.
Ryan MacDonald of Needham came in at $205/share. Stephanie Davis of SVB Leerink came in at $218. Donald Hooker of Keybanc updated his price target to $180. Michael Wiederhorn of Oppenheimer had the highest price target of the blue chip analysts that we track, at $220. And George Hill of Deutsche Bank was the only 5-star rated analyst who came in at “Neutral” as opposed to “Buy” with a $153 target. All in all, the average post-Q2 price target came in at $195.20, implying upside potential of nearly 31%.
Disclosure: Nicholas Ward has no position in any stock mentioned in this article. Nicholas Ward wrote this article for Nobias at their request with a view of giving investors a balanced perspective based on the writings of Nobias highly rated analysts and bloggers. Nobias has no business relationship with any company whose stock is mentioned in this article and does not have a position in this stock.
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