New Trade for March 18th, 2021

Stocks traded lower in early trading as the 10-year Treasury yield rose 10 basis points to 1.74%, it’s highest level since January 2020.  The Dow closed above 33,000 for the first time in yesterday’s session after the Federal Reserve said it does not expect to hike interest rates through 2023. 

As you would expect, telehealth has seen a dramatic uptick over the past year. From the moment the pandemic took hold and stay-at-home orders were announced, people began embracing the virtual option to get medical care.

Now that millions of Americans are being vaccinated each day and COVID-19 cases are in a sharp decline, it may seem like an odd time to recommend a telehealth stock. However, there are several significant reasons our featured ticker for today could be a great buy right now.

Teladoc (TDOC) took advantage of the boost in telehealth by acquiring chronic disease management company Livongo, another beneficiary of consumers’ need to go remote.  As the vaccine is reaching citizens quicker than initially expected, it may seem like an odd time to recommend TDOC shares. When you consider these important factors, you might think differently.

First, the company is growing rapidly. Subscription members were up 41% year over year while non-subscription visits rose 10%. The 10.6 million visits the company’s platform supported last year were an incredible 156% more than 2019. The increased usage led to 98% revenue growth. Removing the impact of two acquisitions, sales in 2020 were still 75% higher than the prior year. Management is projecting more of the same this year.

The next important thing to note is that Teladoc’s recent acquisition of Livongo is starting to pay off. The pipeline of opportunities more than doubled from November to February. Despite the progress, Teladoc CEO Jason Gorevic says the bulk of the financial impact will land in 2022. With the deals signed so early in the year, it’s hard not to see that as another conservative target.

Although growth is strong, and the acquisition of Livongo seems to be on track, Wall Street has recently gotten nervous about Teladoc stock. Shares, which once traded as high as $295, now change hands at about $190, down by more than a third. The price-to-sales ratio (P/S) of 16 is only slightly above the low it hit at the depths of the March 2020 sell-off and then again in November.

Although cases of COVID are declining and the company’s virtual health offerings may no longer be a necessity for many, management believes the habits formed over the past 12 months could keep utilization high going forward. So far, the data supports this. 

Despite the ebbs and flows of the virus, utilization over the four quarters of 2020 increased from 13.4% in the first quarter to 16% and 16.5% in the second and third quarters, respectively, before closing the year at 17.7% for the fourth quarter. If that trend holds, it will mean lower costs for clients and higher retention rates and subscription pricing for the company.

The majority of Wall Street Pros agree that  TDOC is a Buy at these levels. The 29 analysts offering recommendations, 17 rate the stock a Buy, 11 Hold ratings and only one Sell rating.  The median 12-month price target for TDOC is $266.00, which is more than 40% above it’s pre-market price this morning of $188.

For investors who felt they had missed out on buying shares last year, the market’s uncertainty is offering a chance for a stake in what could be the dominant virtual health provider in the decade ahead. For those with a multi-year time horizon, TDOC stock is currently offering a tantalizing discount.

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