Thursday, October 29, 2020

A Small Cap Equity holding: Teladoc Health, Inc. (TDOC, $216.77): “Calling Hold on Teladoc” by: Mitch Kamm, AIM Student at Marquette University

Teladoc Health, Inc. (TDOC, $216.77): “Calling Hold on Teladoc”

By: Mitch Kamm, AIM Student at Marquette University

Disclosure: The AIM Equity Fund currently holds this position. This article was written by myself, and it expresses my own opinions. I am not receiving compensation for it and I have no business relationship with any company whose stock is mentioned in this article.


Teladoc Health, Inc. (NYSE:TDOC) provides care across numerous clinical specialties to help people resolve their primary care, acute, chronic and complex health needs. The company has a current market cap of $18.90 billion, and is headquartered in Purchase, NY.

• Teladoc’s recent merger with Livongo combines Livongo's chronic care management strategy, with Teladoc's telehealth network, which will allow for consumer’s health needs to be met on a long-term basis, allowing customers greater access to multiple professionals, digital assets and data science to further drive a shift in primary care to wholistic telemedicine.

• The COVID-19 pandemic has sped up adoption of telemedicine and remote patient monitoring. A September Piper Sandler Consumer/Tech Survey showed that 43% of consumers surveyed in September reported utilizing Telehealth during Q3 vs. 28% of consumers reporting Q2 utilization in their June survey.

• Teladoc has blasted through its February 2019 price target of $80.81, with further upside and value derived in the near term from their recent acquisition and changing consumer habits due to the pandemic.

Key points: 

Teladoc Health, Inc’s continued disruptive innovation has been further driven by the COVID-19 pandemic and worldwide “shelter in place” orders. The company remains in play due to the shifting nature of healthcare and consumer confidence with in-person visits. Last month, 86% of consumers stated that they believe Telehealth is equal to or better than in-office care. While demand of Telehealth services is not guaranteed to grow past the threat of COVID-19, shifting consumer demand and the pull of convenience and lower cost medical services provides a large growth opportunity for Teladoc.

Teladoc's acquisition of Livongo has allowed the company to shift and focus on wholistic offerings that change how people access healthcare. Teladoc focuses on providing virtual visits to patients. Meanwhile, Livongo has created health-management programs for individuals with chronic conditions. This merger will help offer more comprehensive insights into preventative care, since the companies will be integrating Livongo’s coaching services within Teladoc’s virtual care network. This comprehensive insight and building up of a large database of patient health information will be a driver for the company for the foreseeable future. 

Recent disruption to Teladoc’s business was almost nonexistent due to the nature of their business. In Q2 of 2020, Revenues increased to $241.03 million, up 80.5% from Q1, continuing a strong run of increasing revenues from quarter to quarter. Teladoc does not hold tons of debt on their books and cash flows have been increasingly positive as of late. The company currently holds free cash flow of $21.14 million.

Looking forward, the outlook in the near term looks bearish as the COVID-19 pandemic does not seem to be going anywhere and people are still skeptical of in person medical visits. However, increasing competition in the Telehealth field will cause Teladoc to continue to innovate and consumers will likely start returning to in person medical appointments. In the mid term, the outlook looks better as consumer habits as Telehealth has shown consumers it can be a convenient option for their health. Long term, Teladoc’s move into wholistic preventative care medicine will enable them to seek new growth opportunities if they can continue to provide quality, low-cost Telehealth servicing. 

What has the stock done lately?

Teladoc’s 1-month performance is up 5.52% to 216.77 and its quarterly performance has been -4.62% , an underperformance of the S&P 500. Since the AIM Equity Fund purchased shares of Teladoc at $61.03 in February 2019, the stock has increased 264.13% in value.

Past Year Performance: In the year to date, Teladoc has seen a 158.92% increase compared to the S&P 500 benchmark return of 6.34%. In the last year, Teladoc has returned a whopping 213.16% besting the S&P 500 benchmark of 14.35%.

Source: FactSet

My Takeaway

The future for Teladoc is bright while still being uncertain. There is definitely growth potential with their expansion into wholistic Telehealth combined with Livongo, should allow them to continue to grab market space. Changing customer trends and demands due to the COVID-19 pandemic should allow Teladoc to grab a stronghold on the growing Telehealth industry. However, the growth for the company has been so strong I am not sure how long they can sustain it. I do not see the company losing value but I am not sure they will continue to grow at such a clip. Therefore, the recommendation is hold.

Source: FactSet