This tele-health company’s shares were recently initiated as ‘Outperform’ at Robert W. Baird, and six analysts have raised their earnings forecasts for the company in the past 30 days.
Teladoc, Inc. (TDOC)
From Canaccord Genuity Research
We reiterate our BUY rating on Teladoc, Inc. (TDOC) and raise our price target to $29. In our opinion, investors should initiate a position in TDOC or add to existing positions. The adoption of telemedicine is in its early stages, and as the only publicly-traded vehicle, TDOC is well-positioned to evolve to the most preferred model over time.
We were encouraged by management’s commentary regarding signing customers that switched from competitors. In the near term, the company continues to post significant growth, with visits +60.4% and revenue +59.5%. The company provided impressive 2Q'17 guidance, while portending a beat-and-raise scenario as full-year 2017 was maintained. Furthermore, breakeven during 4Q'17 was reaffirmed.
Key positives: (1) Adj-EBITDA well ahead of expectations at $(9.1)M) vs. $(11.0)M est. (2) Visits grew by +60.4% to 384,839, exceeding our est. by 1.5% and nearly hitting the top end of 375K-385K guide. (3) Behavioral revenue more than doubled to $5M.
Key negatives: (1) Just maintained 2017 guidance after 1Q'17 beat and 2Q'17 guide that exceeded our and consensus estimates. (2) Membership of 20.1M was 134K below our estimate of 20.2M and near the low end of the 20.0M-20.5M guidance range.
Highlights from the conference call:
• Utilization is the name of the game: The 1Q'17 rate was 7.6%, 10 basis points ahead of our 7.5% estimate. Utilization improved 120 bps y/y and 50 sequentially. TD Ameritrade, a longstanding client, was noted as achieving a ~20% utilization rate. Management stated that many clients have 20%-50% utilization rates and even an 80% utilization rate customer. The addition of new services, especially behavioral health, should driver higher rates. Furthermore, as customers’ mature rates should increase, we expect this dynamic to impact the overall rate in the coming years given that a majority of customers have been with the company less than three years.
• New specialties targeting more complex clinical conditions: The company stated that at its recent customer summit there was significant interest in additional specialties and a deepening of clinical services into lower frequency/higher cost conditions. The company did not elaborate if this is buy vs. build type of expansion; however, management did respond that such diversification would not alter the long-term margin profile previously discussed. High 60% gross margin is targeted (given potential mix shift). We will look to gain additional insight into potential clinical offering expansion.
• Market share gains and competitive displacements: In discussing the sales environment, TDOC stated it is seeing momentum in gaining new clients that were previously with competing vendors.
• Upside earnings bias: We raised our 2Q'17 forecasts based on guidance; however, we remain within annual guidance with the view that upside is likely.
Valuation and price target: We raised our price target to $29, based on 5.5x 2018E EV/sales, a 20% premium to a health benefits-related peer group. Shares currently trade at 4.3x.
Richard Close and Brian Hoffman, Canaccord Genuity Research, www.canaccordgenuity.com, 617-371-3711, May 9, 2017