Stock Analysis & Ideas

Which Healthcare Stock Could Deliver Higher Returns?

Story Highlights

The growing fear of a recession continues to keep investors worried. That said, the pullback in several stocks presents an opportunity to buy some attractive names for the long-term. In this article, we’ll compare a leading retail pharmacy chain, a virtual healthcare provider, and a market leader in robotic surgery space, to pick the one with a higher upside potential.

While several investors are spooked by the fear of a looming recession, there are some who are looking for stocks with strong fundamentals at attractive price points. Generally, healthcare companies are considered to be more resilient in an economic downturn, compared to companies in certain other sectors. However, investors need to check company-specific risks before buying any stock. Amid this backdrop, we used the TipRanks Stock Comparison Tool to place CVS Health, Teladoc, and Intuitive Surgical against each other, to pick the healthcare stock that could yield better returns.

CVS Health (NYSE:CVS)

CVS Health is one of the leading retail pharmacy chains, operating more than 9,000 locations and over 1,100 walk-in medical clinics. Through a diversified business model, the company also sells health insurance products.

CVS shares are down 7.5% year-to-date. That said, the stock has fared better than the broader market, with the S&P 500 (SPX) down more than 19% so far this year.

CVS delivered stellar first quarter results despite a decline in the COVID-19 tests and vaccines administered at the company’s stores. Further, the company raised its full-year guidance to reflect continued momentum in its pharmacy services, retail segment, and health insurance unit.    

Last month, Loop Capital analyst Joseph France initiated coverage on CVS stock with a Buy rating and a price target of $120. France believes that CVS is well-positioned in its core markets. Furthermore, the analyst feels that given lesser debt and improved earnings growth, the company can pursue additional strategic acquisitions. France also expects CVS’s health insurance business to take advantage of the growth in the Medicare market.

Meanwhile, the Street is cautiously optimistic on CVS stock, with a Moderate Buy consensus rating based on seven Buys and five Holds. At $116.33, the average CVS Health price target suggests 21.98% upside potential from current levels.

Teladoc Health (NYSE:TDOC)

This virtual healthcare company was once a pandemic favorite. But with the reopening of the economy, Teladoc’s growth rate slowed down.

Moreover, Teladoc reported a massive loss in the first quarter due to a $6.6 billion goodwill impairment charge, mainly related to the company’s Livongo acquisition. Teladoc acquired Livongo, a digital healthcare company focused on chronic disease management, for $18.5 billion in 2020.

To add to investors’ disappointment, Teladoc issued a weak Q2 guidance and lowered the full-year outlook, reflecting the trends in its direct-to-consumer mental health service – BetterHelp, and chronic conditions market.

Heading into Q2 results, Piper Sandler analyst Jessica Tassan stated that an analysis of downloads of Teladoc’s Livongo app reveals that results for the chronic care business should come in-line with expectations.

Tassan added that a “modest acceleration” in downloads was noted since the beginning of July. Overall, Tassan has a Buy rating on Teladoc stock with a price target of $42.

On TipRanks, Teladoc scores a Moderate Buy consensus rating based on eight Buys and 18 Holds. The average Teladoc price target of $46.08 implies 13.55% upside potential from current levels. Shares have plunged more than 57% so far this year.

Intuitive Surgical (NASDAQ:ISRG)

Intuitive Surgical is the pioneer and market leader in the robotic-assisted surgery space. It’s worth noting that a significant portion of Intuitive’s revenue is recurring in nature. Last year, the company’s recurring revenue (includes instruments and accessories revenue, service revenue, and operating lease revenue) accounted for 75% of the overall top-line.

Due to the COVID-19 resurgence, Intuitive delivered mixed first-quarter results. Revenue grew 15% to $1.49 billion. However, adjusted EPS declined 3.4% to $1.13, due to increased logistics costs, higher fixed costs, and a rise in operating expenses. At the end of the first quarter, the company had an installed base of 6,920 Da Vinci Surgical systems.

Ahead of the upcoming Q2 results on July 21, Truist analyst Richard Newitter stated that his survey of hospital administrators revealed that the growth in med-tech procedure volumes is “muted.” Newitter added that survey respondents indicated that their near-term budgets are re-prioritizing away from the company’s da Vinci systems.

Based on his investment thesis, Newitter slashed his price target for Intuitive stock to $270 from $355, but maintained a Buy rating.

Overall, the Street has a Moderate Buy consensus rating based on nine Buys, five Holds, and one Sell. The average Intuitive Surgical price target of $293 implies 38.92% upside potential from current levels. Shares are down 41.4% year-to-date.

Conclusion

Wall Street analysts are treading carefully when it comes to CVS, Teladoc, and Intuitive Surgical, due to a tough macro backdrop. Currently, analysts estimate a higher upside potential in Intuitive stock, than in CVS and Teladoc. Intuitive’s dominant position in the robotic surgery space and a huge total addressable market make it an attractive pick for the long haul.  

What’s more, as per TipRanks Smart Score System, Intuitive earns an eight of 10, indicating that the stock could outperform the broader market.  

Disclosure

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