What happened

Shares of Teladoc Health (NYSE:TDOC) and Livongo Health (NASDAQ:LVGO) climbed on Monday, following positive analyst commentary. As of 1:50 p.m. EDT, both stocks were up more than 7%.

So what 

Credit Suisse analyst Jailendra Singh upgraded his rating on Teladoc's stock from neutral to outperform and boosted his price forecast from $225 to $249. Singh's new target price represents potential gains of roughly 25% for investors, based on Teladoc's current price near $200.

Chess pawn pieces are facing each other with a king piece in the center.

Credit Suisse analyst Jailendra Singh says a merger between Teladoc and Livongo will create a powerful force in digital health. Image source: Getty Images.

Teladoc's share price has declined by approximately 20% since it announced its plans to merge with Livongo Health on Aug. 5. Some investors questioned whether the $18.5 billion Teladoc agreed to pay for Livongo in cash and stock was too steep a price. Others wondered whether the two companies' operations were as complementary as management believed.

Singh, however, argues that merging the two businesses is a sound strategy, as it will create a "digital health giant" with leading positions in virtual care and chronic care management.

Now what

There will no doubt be some synergies between Teladoc's virtual care network and Livongo's platform, which helps people monitor chronic conditions like diabetes. Moreover, the combined company will have an attractive financial and growth profile, with expected 2020 full-year revenue of approximately $1.3 billion -- signifying year-over-year growth of 85% -- and adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) of more than $120 million. 

Better still, a combined Teladoc and Livongo could help to reduce the need for in-person medical care at a time when many health centers are stretched thin due to COVID-19.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.