What happened

Shares of Teladoc Health (TDOC 0.50%) and Livongo Health (LVGO), two telehealth companies that recently agreed to merge, rose sharply on Tuesday. By the time the market closed, the two stocks were up 6.3% and 5.9%, respectively.

The stocks' move higher was likely fueled by a combination of an overall bullish trading day for tech stocks and an analyst's decision to initiate coverage of Teladoc stock with a buy rating.

A chart showing stock prices moving higher

Image source: Getty Images.

So what

D.A. Davidson analyst Hannah Baade initiated coverage of Teladoc with a buy rating and a $250 12-month price target. The price target represents 16% upside -- and that's on top of the stock's more than 6% gain today.

Backing up her optimism for the stock, Baade notes that utilization rates of telehealth solutions are soaring. This secular tailwind, combined with the company's staggering organic growth and market-expanding acquisitions, make Teladoc Health a good investment, she argues.

Of course, given Teladoc's pending merger with Livongo, the two stocks mostly move in lockstep.

Now what

In a Sep. 16 update from Teladoc on the two companies' pending merger, Teladoc management said the transaction was on track to close by the end of the fourth quarter. Of course, there's always a risk that the deal could fall through.

Baade notably believes Teladoc provided conservative third-quarter guidance, setting the stage for actual results during the period to beat the consensus analyst estimate. Management guided for total third-quarter revenue to be between $275 million and $285 million. This compares to revenue of $138 million in the third quarter of 2019. Teladoc's top-line year-over-year comparison will benefit from the company's recent acquisition of InTouch Health, which closed on July 1.