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Teladoc Health Stock: Buy the Dip?

By Cory Renauer - Mar 1, 2021 at 7:37AM

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The company's earnings outlook isn't nearly as bad as the recent stock price beating suggests.

Shares of Teladoc Health (TDOC -5.54%) were beaten down last week after the company's forward-looking guidance range failed to inspire investors. Did the market thrashing create a buying opportunity?

Let's look at the road ahead of the telehealth pioneer to see if its stock price can rebound. 

A woman sits pensively in front of a computer monitor.

Image source: Getty Images.

Why the assault

Teladoc Health's stock price tumbled more than 24% last week despite reporting relatively positive earnings results for the fourth quarter of 2020. Considering the cash and stock deal for Livongo Health that completed last year, investors were eager to see signs of explosive growth. While the company performed well, its forward-looking forecast doesn't predict a growth explosion. 

During the fourth quarter, revenue rose 145% year over year to $383 million largely due to the addition of Livongo's operation. The company expects first-quarter revenue to reach about $450 million, then taper off for the rest of the year. In 2021, Teladoc Health expects revenue to reach about $2.0 billion.

Investors are also nervous about a race to the bottom against a slew of competing telehealth service providers. In 2021 the company expects adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) to reach about $265 million. That's an awfully modest profit for a company that was sporting a market cap over $42 billion a couple of weeks ago.

Why you shouldn't panic

Teladoc's valuation may have gotten a little too far ahead of the company's bottom line. This hasn't changed the company's chance to remain the leading provider of telehealth services. In fact, fourth-quarter usage trends suggest Teladoc's strategy is working.

Visits related to non-infectious diseases like back pain, blood pressure, anxiety, and depression rose to 75% of total visit volume, up from 50% in the previous year period. The company's BetterHelp brand of direct-to-consumer mental health services also delivered $300 million in revenue to the top line last year.

There's no shortage of telehealth service providers eager to lure clients away from Teladoc Health. Customers that use multiple services, though, are much easier to retain. Last year's acquisition of the chronic disease management specialist, Livongo positions Teladoc to lead the way in this underserved market.

A big opportunity

Livongo's smartphone-enabled services gently nudge people to better manage their chronic conditions throughout the day. All those little improvements eventually add up to fewer hospitalizations, which saves healthcare plan sponsors a bundle in the long run.

Around 70 million Americans have hypertension or diabetes, and around 18 million of them were Teladoc Health clients when the company acquired Livongo last October. Livongo had enrolled less than a million people with hypertension or diabetes at the time of the acquisition, paving the way for a great deal of cross-selling.  

A buy now

Shares of Teladoc Health have been trading at around 17 times the company's revenue expectations for 2021. That's a lot to live up to, but the company has confidently projected revenue growth at an annual rate between 30% and 40% through 2023.

This isn't the 70% growth rate that the company's investors have gotten used to over the past five years, but it's fast enough to provide market-beating gains. Increasing use of multiple services should make it harder for healthcare plan sponsors to leave Teladoc Health, so don't be surprised if the company reports steady revenue growth in the years beyond 2023.

Investors will want to keep their eyes open for signs of a pricing war with competing digital healthcare providers. For now, though, it looks like Teladoc Health has everything it needs to remain the leader in this space.

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Stocks Mentioned

Teladoc Health, Inc. Stock Quote
Teladoc Health, Inc.
TDOC
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