How Much Upside Remains In Teladoc’s Share Price?

Cathie Wood’s Ark Invest is betting big on Teladoc’s [TDOC] share price, with the telemedicine company’s stock making up 6.1% of Ark Innovation ETF [ARKK].

During the COVID-19 pandemic, Teladoc’s share price and sales have risen rapidly due to the demand for virtual healthcare. However, this year the stock has cooled off, raising the question of whether last year’s gains can return.

Investment website Zacks believes that Teladoc may “have a good ride ahead” as the pandemic continues into 2021, which plays to Teladoc’s strengths as a virtual healthcare service offering clinical services remotely. Zacks notes that Teladoc is increasing efforts to boost penetration among existing clients, which could result in it growing its membership base by 65 million in the United States.

So, are Ark and Zack’s right to back Teladoc?

Can Teladoc’s share price break out?

In 2020, Teladoc’s share price surged 141% as the coronavirus caused new demand for remote telemedicine. However, over the past three months, Teladoc’s share price has slipped 15%, trading around its 50-day moving average of $190 (as of 15 April).

Teladoc’s share price woes are, in part, due to Amazon [AMZN] announcing that it was entering the online pharmacy market. However, as The Motley Fool’s Rich Duprey notes, concerns might be overstated.

“Over the years, Amazon has launched numerous products and services that were promised to disrupt whatever market they were in, but that ultimately flamed out. Fire phone, anyone?” Duprey writes on The Motley Fool.

Can Teladoc’s share price mount a comeback? The stock’s 200-day moving average is around $214, while its 52-week high is $308, which would result in a 12% and 62% upside respectively on 16 April’s $190.10 close.

Analysts seem to be optimistic that the former can at least be broken. Needham has a $235 target on Teladoc’s share price, having initiated coverage on 15 April with a buy rating. Needham analyst Ryan MacDonald said that Teladoc’s market-leading position meant it was able to benefit from the COVID-driven surge in telemedicine and had an opportunity for “durable” growth, as reported by The Fly. Deutsche Bank and DA Davidson also have buy ratings on Teladoc.

Among those tracking the stock on Yahoo Finance, Teladoc’s share price has a $256.79 average price target — a 35% upside on 16 April’s closing price.

Where next?

Teladoc’s revenues nearly doubled in 2020, growing 98% year-on-year to $1.9bn, with total visits increasing 156% to 10.6 million. In the fourth quarter, revenue came in at $383.3m, up 145% from the same period last year. Total visits for the quarter were 3 million, up 139% from the previous year.

However, weighing on the earnings was October’s massive $18bn-plus deal to acquire Livongo Health. In the quarter, net loss came in at $394m compared to $19m in the same quarter last year, as Teladoc stomached integration and compensation costs.

“By accelerating our mission to transform the healthcare experience, we exceeded our fourth-quarter and full-year 2020 expectations and see strong momentum across our global business in 2021 as the market embraces the breadth and depth of our unique capabilities,” said Jason Gorevic, CEO of Teladoc Health.

Longer-term, the deal should strengthen Teladoc’s bottom line, even if it weighs on earnings this year. The deal combines Teladoc’s telemedicine offering with Livongo’s diabetes and remote monitoring services. According to Fierce Healthcare, the combined company is expected to generate revenue growth of 30% to 40% over the next two years.

Investors will be watching Teladoc’s first-quarter results due 28 April. For the quarter, Teladoc has guided for total revenue in the range of $445m to $455m. This is in line with the Wall Street consensus of $451.92m in revenues for the quarter, which would work out as a 153.5% increase on the previous year. Adjusted EBITDA loss is expected at $46m to $43m, including $7m in expenses as part of the Livongo deal. For the full year 2021, Teladoc is guiding for $1.95bn to $2bn in revenue, with an adjusted EBITDA loss of between $255m and $275m.