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Here's Why Hold Strategy is Apt for Teladoc (TDOC) Stock Now

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Teladoc Health, Inc. (TDOC - Free Report) is well-poised to grow on the back of rising access fees and continuous adoption of telehealth services. Its expanding product offerings are likely to bring in more members in the coming days.

Teladoc — with a market cap of $3.1 billion — is a provider of virtual access to high-quality healthcare and expertise. Courtesy of solid prospects, this Zacks Rank #3 (Hold) stock is worth retaining in your portfolio at the moment.

Let’s delve deeper.

The Zacks Consensus Estimate for TDOC’s current year earnings indicates a 98.4% year-over-year improvement. The stock has witnessed three upward estimate revisions in the past 60 days against none in the opposite direction. Teladoc beat on earnings in all the last four quarters, the average surprise being 18.8%. This is depicted in the graph below.

Teladoc Health, Inc. Price and EPS Surprise

Teladoc Health, Inc. Price and EPS Surprise

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

Until last year, steep operational costs plagued TDOC’s bottom line, which is now recovering. It extended a partnership with Microsoft Corporation this July to address the workforce crisis and reduce administrative woes.

Our estimate for 2023 total expenses indicates a more than 82% year-over-year decline, which will benefit the bottom line. This year, the company expects adjusted EBITDA to be in the range of $300-$325 million, the mid-point of which suggests 26.8% growth from the 2022 level.

The consensus mark for current-year revenues is pegged at $2.6 billion, suggesting a 9.3% rise from the prior year’s reported number. We expect 2023 access fees to jump 9% year over year, which will support the top-line growth.

One of the major challenges TDOC faced in the last few years was overpaying for the Livongo acquisition, which forced the company to take billions in impairment charges. It is rising above that disaster with support from growing operating strength as demonstrated by its improving cash flow situation. In the last reported quarter, net operating cash flow jumped 9.4% year over year to $101.2 million. Free cash flow of $64.6 million was higher than $47.6 million in the year-ago period.

The company’s BetterHelp business is expected to gain from new member growth and stable customer acquisition costs. It is one of the successful acquisitions by the company. We expect the business to witness more than 12% year-over-year growth this year. With the growing telehealth industry, Teladoc is well-positioned for long-term growth with its digital health interaction platforms.

Key Risks

However, there are a few factors that investors should keep an eye on. The competition in the virtual care space to capture a bigger market share is becoming fierce, which can put pressure on the company's pricing.

Also, Teladoc relies heavily on debt for growth. As such, the high interest rate environment can lead to increased borrowing costs for the company. Nevertheless, we believe that a systematic and strategic plan of action will drive its growth in the long term.

Key Picks

Some better-ranked stocks in the broader Medical space are Atai Life Sciences N.V. (ATAI - Free Report) , Select Medical Holdings Corporation (SEM - Free Report) and Tenet Healthcare Corporation (THC - 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 Atai Life Sciences’ current-year earnings implies a 16.3% improvement from the year-ago reported figure. It has witnessed four upward estimate revisions over the past 60 days against no movement in the opposite direction. ATAI beat earnings estimates in two of the last four quarters, met once and missed on one occasion.

The Zacks Consensus Estimate for Select Medical’s 2023 earnings indicates a 56.9% year-over-year increase to $1.93 per share. It has witnessed one upward estimate revision over the past 60 days against no movement in the opposite direction. The consensus mark for SEM’s 2023 revenues indicates 4.2% growth from a year ago.

The Zacks Consensus Estimate for Tenet Healthcare’s 2023 bottom line is pegged at $5.73 per share, which rose 2.3% in the past 60 days. During this time, THC has witnessed four upward estimate revisions against none in the opposite direction. It beat earnings estimates in all the last four quarters, with the average surprise being 25.9%.

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