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Should You Hold On to Teladoc Health (TDOC) Stock for Now?

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Teladoc Health, Inc. (TDOC - Free Report) is well poised to grow on the back of lucrative business operations, high demand for telehealth services and strategic partnerships. Growing membership and visits should buoy its results. Even though the stock witnessed a severe decline of share price this year, the fundamentals and valuation show better days ahead.

Teladoc Health — with a market cap of $5.1 billion — provides virtual access to high-quality medical care and expertise. Based in Purchase, NY, it has a user-friendly interface designed to enable members and dependents to remotely access healthcare whenever and wherever an individual chooses through mobile devices, Internet, video and phone. Courtesy of solid prospects, this Zacks Rank #3 (Hold) stock is worth holding on to.

Let’s delve deeper.

The stock has plunged 68.8% in the year-to-date period compared with a 33.5% decline in the industry. With the effects of the pandemic declining fast, people are moving away from the stock. However, TDOC remains a long-run bet, highlighted by its improving numbers and an interesting valuation. 

The Zacks Consensus Estimate for Teladoc Health’s second-quarter 2022 earnings per share indicates a 17.4% year-over-year improvement. The company beat earnings estimates in three of the last four quarters and missed once, with the average surprise being 20.3%.

Teladoc Health, Inc. Price and EPS Surprise

Teladoc Health, Inc. Price and EPS Surprise

Teladoc Health, Inc. price-eps-surprise | Teladoc Health, Inc. Quote

Furthermore, the consensus mark for second-quarter 2022 revenues is pegged at $586.8 million, indicating a 16.6% year-over-year rise. The company expects revenues between $2.40 billion and $2.50 billion for the full year, higher than the 2021 level of $2 billion. Teladoc projects total visits in the band of 18.5-19.5 million in 2022, indicating a rise from the 2021 level of 15.4 million.

Teladoc is going after a $261 billion U.S. total addressable market. Its growing market and volumes are expected to keep cutting losses and move closer to a profitable zone. The total U.S. paid memberships for 2022 are expected to be between 54 million and 56 million, suggesting growth from the 2021 level of 53.6 million. U.S. visit fee-only access is projected to be available to around 25 million individuals in 2022 compared with the 2021 figure of 24.2 million.

Thanks to the growing numbers, cash will keep coming. In 2021, net operating cash flow amounted to $194 million, which improved from cash used in operations of $53.5 million a year ago. Even though it faced a hiccup in first-quarter 2022, Teladoc is expected to build on its 2021 momentum and not burn through cash. Growing strength in the company’s operations is expected to support its cash flows.

According to MarketsandMarkets, the global telehealth market is projected to witness a CAGR of 16.9% during the 2020-2025 forecast period, touching $55.6 billion by 2025 from $25.4 billion in 2020. Teladoc Health, the leading player in this industry, is poised to gain from this trend. It has been banking on acquisitions to boost growth, which has expanded its distribution capabilities, broadened its service offerings and created a global footprint. Its newly formed relationship with Amazon.com, Inc. (AMZN) and the launch of voice-activated general medical virtual care via Amazon Alexa is a major positive. Given that around 70% of smart speaker users in the country used Amazon Echo in 2020, and the number is expected to grow, the deal will offer huge upside potential for Teladoc Health.

The company is currently trading at 1.75X forward 12-month price to sales, lower than 4.90X of the industry and 3.37X of the S&P 500 Index. This shows the company is undervalued at the current levels.

Key Concerns

There are a few factors that are impeding the growth of the stock lately.

Teladoc Health had an accumulated deficit of $8,023.2 million as of Mar 31, 2022, which widened 464.4% from the 2021-end level. The figure is not likely to decrease in the short run. Also, competition in the virtual care space is fierce, which will put pressure on the company's pricing.

Key Picks

Some top-ranked stocks in the medical space are Select Medical Holdings Corporation (SEM - Free Report) , Omega Therapeutics, Inc. (OMGA - Free Report) and Progyny, Inc. (PGNY - Free Report) , each carrying a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Zacks Consensus Estimate for Select Medical’s earnings is currently pegged at $2.19 per share. SEM has witnessed one upward estimate revision in the past 60 days against none in the opposite direction.

Select Medical’s earnings beat estimates in each of the last four quarters, the average being 42%.

The Zacks Consensus Estimate for Omega Therapeutics’ earnings indicates a 28.9% increase from the prior-year reported number. OMGA has witnessed three upward estimate revisions and no downward movement in the past 60 days.

Omega Therapeutics’ earnings beat estimates twice in the last four quarters and missed the mark on the other two occasions. 

The Zacks Consensus Estimate for Progyny’s 2022 bottom line has improved 4.5 times in the past 60 days. PGNY has witnessed three upward estimate revisions during the same time against none in the opposite direction.

Progyny’s earnings beat estimates in each of the last four quarters, the average being 169.7%.