Pharma giants receive much attention due to their strong product pipelines and dividends. That said, there are many emerging healthcare and biotech plays that have the potential to offer compelling returns. This year, several stocks, including Moderna, Teladoc Health, Ontrak, Dexcom, and Acceleron Pharma, have significantly outpaced the broader market. But is there more room for growth?
We will pick two rapidly growing companies, Teladoc and Ontrak, and use the TipRanks Stock Comparison tool to gauge the Street’s sentiment on these stocks as well as find out which stock could offer higher returns.
Teladoc Health (TDOC)
Leading telehealth company Teladoc connects patients virtually with hospitals and physicians in more than 175 countries. Since the pandemic, an increasing number of patients preferred consulting doctors remotely to avoid exposure to the coronavirus. The trend benefited Teladoc as evidenced by the 79% rise in Jan-Sep revenue to $711 million, backed by a 163% spike in total visits. That said, the company is not yet profitable on a GAAP basis.
On Oct. 30, Teladoc completed the acquisition of Livongo Health, a leading digital health management company that serves patients with chronic diseases. The news of the $18.5 billion acquisition first emerged in August and did not sit well with investors initially, leading to a sell-off in Teladoc stock. Investors seemed to be concerned about the price of the deal and the potential synergies.
Despite the recent pullback, Teladoc stock has still advanced by a whopping 133% year-to-date. Aside from Livongo, the company made another acquisition this year— InTouch Health, a provider of enterprise telehealth solutions for hospitals and health systems. (See TDOC stock analysis on TipRanks)
Meanwhile, despite the pandemic-related uncertainty, Teladoc continues to expect paid memberships in the US to be in the range of 50 million-51 million members this year and visit-fee only access to be available to 21 million-22 million individuals.
Last week, Michael Wiederhorn, 5-star analyst with Oppenheimer, increased his earnings estimates for Teladoc to reflect the impact of the Livongo acquisition. Wiederhorn reiterated a Buy rating on Teladoc with a $250 price target and said, “We believe TDOC remains the best positioned pure play telehealth company, benefiting from highly favorable industry dynamics and share-gain opportunities related to cross-selling. TDOC earnings growth should accelerate as the top-line growth remains robust, while margins should expand due to recent M&A, leverage and internal opportunities.”
Overall, 14 analysts covering Teladoc echo Wiederhorn’s optimism with a Buy rating, while 2 analysts have a Hold rating. That adds up to a Strong Buy analyst consensus. The average price target stands at $252.19, implying a 29.2% possible rise from current levels.
Ontrak (OTRK)
Ontrak (formerly Catasys) is an AI-powered, virtual healthcare provider that works with insurance companies to provide healthcare solutions to insured members with behavioral issues that cause or exacerbate chronic medical conditions like diabetes, hypertension, and congestive heart failure. Ontrak claims that its programs deliver cost savings of over 50% for enrolled members.
The company’s revenue surged 130% to $53.6 million in the first nine months of 2020, despite multiple headwinds, including the loss of 42,000 members from its outreach pool due to lower healthcare utilization resulting from COVID-led shutdowns and a key partner rescheduling further enrollments to 2021 to allow its budget to catch up. Notably, lower healthcare utilization led to reduced medical spending, thus bringing down many of the company’s high-cost members below the medical expense threshold to qualify for Ontrak’s programs.
Meanwhile, Ontrak is significantly investing in its business to support increased enrollment and growth initiatives. In October, the company acquired LifeDojo Inc, a science-backed behavior change platform with a presence in over 16 countries. As in the case of several rapidly growing companies, Ontrak is still not profitable, though it expects to be “significantly adjusted EBITDA positive” in 2021. (See OTRK stock analysis on TipRanks)
In November, Ontrak stock declined after the company lowered its guidance. Positive developments related to COVID-19 vaccines also contributed to the drop. Several analysts, including Canaccord Genuity’s Richard Close, believe that there is a misconception about Ontrak being a COVID-play.
Following two investor meetings, Close reiterated a Buy rating for Ontrak on Nov. 29, with a price target of $89 (79.3% upside potential). Explaining his bullish stance, Close said, “Our confidence in OTRK has been strengthened for several reasons: (1) headwinds that led to the downward 2020 guidance revision are short-term in nature and should be resolved in 2021; (2) 2021 growth of 100%+ is highly visible; and (3) recent weakness following positive COVID-19 vaccine announcements is a misinterpretation that Ontrak is just a ‘stay at home’ COVID play.”
“Despite several headwinds in 2020 that mgmt. estimated at ~$100M, we still expect Ontrak to report 135% y/y growth. Finally, a return to normal with a COVID vaccine should drive higher medical spend and allow the company to identify more individuals that would benefit from the Ontrak program,” added the 5-star analyst.
Ontrak boasts the Street’s Strong Buy analyst consensus with 6 unanimous Buys. Even after a massive 211% rise in the stock so far this year, Wall Street sees a 72.4% upside potential in the months ahead with the average price target of $87.67.
Bottom line
Both Teladoc and Ontrak are expected to weave interesting growth stories as the outlook on telehealth remains strong over the long-term, though growth rates might moderate. Currently, the Street feels that Ontrak stock could soar at a higher rate than Teladoc over the coming year, thus making it a better pick.
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Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment
