Consumers want convenience and choice. That applies to healthcare, too. eHealth (EHTH -2.21%) and Teladoc Health (TDOC -2.91%) seek to allow individuals to obtain health insurance and consult with a doctor, respectively, without leaving the comfort of their homes.
With eHealth, consumers can find health insurance from more than 170 insurers. The company breaks its business into two segments: one focused on Medicare patients, and the other on individuals, families, and small businesses. As of the end of the third quarter, eHealth estimated there were more than 551,000 Medicare members and 131,000 members in the individuals and families segment.
Teladoc Health, a leader in virtual care (also known as telemedicine), provides around-the-clock access to doctors and specialists. Through partnerships with multinational companies and insurers, Teladoc serves more than 12,000 clients with 35 million members. And telemedicine overcomes geographic borders -- Teladoc's platform connects doctors to patients in more than 130 countries and 30 languages.
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eHealth and Teladoc gain momentum
eHealth boasts a track record of consistently beating analyst estimates. In 2019, it exceeded analyst estimates by $0.43 in Q1, $0.46 in Q2, and $0.20 in Q3. Consensus estimates for Q4 earnings are pegged at $2.15. Open enrollment for insurance takes place in the fourth quarter, resulting in a much higher estimate than in the remaining quarters in the year.
Teladoc hopes to continue the favorable trend it saw in its fourth-quarter performance. Though it missed estimates in Q4 2017 by $0.26, Teladoc has since corrected the trajectory. It beat earnings in Q4 2018 by $0.01. Most recently, its Q3 2019 earnings surprised analysts, outpacing their estimates by $0.12. The trajectory appears to have successfully turned around and could likely surprise again.
Credit Suisse recently conducted an investor survey on the health IT field. When asked which companies they are most bullish on heading into 2020, long-only investors favored Teladoc. It came in first with 38.5% of the vote while 23.1% of respondents chose eHealth, giving it a tie for third with HSA-provider HealthEquity (HQY -0.20%). Hedge funds had a different view. eHealth led the group, garnering 44.4% of the hedge fund vote and Teladoc placed second with 27.8%.
However, when asked which health IT companies the investors are most bearish on for 2020, 38.9% of hedge funds chose Teladoc. This highlights the divergent views on the company by the hedge fund community. It also explains the 35% short interest in the stock, which is basically a bet against the company's success. eHealth, on the other hand, avoided the top five bearish list.
Both companies have sizable short positions. This simply means the investors bet against the company and hope the stock price will decline. While the survey highlights the sentiment against Teladoc, eHealth posted 19% short interest. If the companies execute and exceed earnings expectations, it could lead to a short squeeze -- which puts pressure on investors who shorted the stock. That could further bolster an increase in stock price.
Why now?
Healthcare investors expect Teladoc to provide an update on the outlook for 2020 and a possible pre-announcement of the 2019 full-year numbers during next week's J.P. Morgan Healthcare Conference. The company is scheduled to present on Jan. 13 at noon EST. Teladoc noted that a strong flu season can increase visits by 5% to 10%, which could positively impact fourth-quarter results.
eHealth reports its fourth quarter and full-year results for 2019 in February. The company noted positive trends through the open enrollment period during the last quarter, boosting confidence that the higher end of the revenue guidance range can be achieved. Further, in a survey conducted by eHealth, 42% of respondents who did not receive government subsidies indicated they are more inclined to switch health plans. This could provide greater opportunity for eHealth to sell a new or alternative option.
The Affordable Care Act (ACA) remains a contentious topic, and the cost of healthcare is sure to be front and center leading up to the next election. However, most people generally acknowledge a growing need for healthcare services. eHealth, while still gaining steam, provides a readily accessible marketplace to shop for various options for health coverage. Teladoc seeks to continue a leadership position in the burgeoning global telehealth market. In fact, Credit Suisse highlighted that 57.8% of investors polled selected telemedicine as the most exciting healthcare innovation or technology.
Investors looking to capitalize on these trends should buy eHealth and Teladoc now. The next earnings beat could trigger a rewarding price increase and possible short squeeze.
