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Teladoc: Can this Pandemic Play Regain its Health?
Stock Analysis & Ideas

Teladoc: Can this Pandemic Play Regain its Health?

Macro headwinds have caused a steep decline in several growth stocks as investors are seeking value stocks amid these uncertain times. However, macro headwinds are not solely responsible for the significant pullback in Teladoc Health’s (NYSE: TDOC) shares. The virtual health care provider’s disastrous Q1’22 results and full-year outlook caused a major sell-off, with shares now down 64% year-to-date.

What Went Wrong?

Investors were expecting growth rates to moderate after Teladoc saw rapid growth in its business early on in the pandemic, when people preferred virtual consultations with healthcare professionals. However, the company delivered worse-than-anticipated Q1 results, by posting a staggering loss per share of $41.58 against analysts’ loss estimate of $0.60 per share. Revenue grew 25% to $565.4 million, but lagged the Street’s estimate of $568.7 million.

Teladoc’s Q1 bottom-line was impacted by a $6.6 billion goodwill impairment charge mainly related to the Livongo acquisition. Teladoc acquired Livongo, a digital health company focused on preventive medicine and chronic disease management, in 2020 for $18.5 billion.

Further, Teladoc lowered its 2022 revenue outlook to $2.4 billion – $2.5 billion from its previous guidance range of $2.55 billion – $2.65 billion. It expects full-year net loss per share between $43 – $43.50, compared to the previous outlook of a loss of $1.40 – $1.60.

Teladoc blamed its weak outlook on higher advertising costs in the direct-to-consumer (DTC) mental health market and “elongated sales cycle” in the chronic condition market.

Analysts’ Opinions

Teladoc’s Q1 results and outlook led to a series of downgrades and price cuts by Wall Street analysts.

Earlier this month, Argus analyst David Toung downgraded Teladoc to Hold from Buy citing rising competition in the DTC market for behavioral health services and higher customer acquisition costs.

Toung also noted Teladoc’s recent disappointing Q1 results with slower-than-anticipated revenue growth and falling gross and EBITDA margins. The analyst now expects operating losses in 2022 and 2023.

In contrast, last week, Piper Sandler analyst Jessica Tassan increased her price target on Teladoc to $42 from $21 and reiterated a Buy rating. Tassan revised her estimates for Teladoc’s BetterHelp behavioral healthcare business and chronic care solutions after evaluating the developments in the DTC behavioral healthcare market, interim app data, and a discussion with the company’s management.

Pointing to the Department of Justice probe which rival Cerebral is facing for alleged violations of the Controlled Substances Act, Tassan noted that Teladoc does not prescribe controlled substances and “should only benefit from the maelstrom currently facing Cerebral.”

Overall, the Street is cautiously optimistic on the stock with a Moderate Buy consensus rating based on nine Buys and 19 Holds. The average Teladoc price target of $57.48 implies 74.98% upside potential from current levels.

Conclusion

Teladoc has a strong presence in the virtual healthcare market but its recent performance has shaken investors’ confidence. The company will have to deliver better-than-anticipated results in the quarters ahead to prove its ability to capture additional business despite growing rivalry and fading pandemic tailwinds.

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