This Five-Star Stock is a Buy Right Now

Note from Daily Trade Alert: The following article first appeared in The Growth Stock Advisor, a premium newsletter offered by Investors Alley.

The pandemic has changed the way many businesses, and even entire industries, operate.

This is especially true for the healthcare industry, in which the pandemic has advanced telehealth and telemedicine by perhaps a decade.

To reduce the risk of virus transmission, enforcement of privacy law HIPAA for telemedicine was relaxed. So were requirements for in-person prescriptions. The result was a giant leap in demand for healthcare.

A U.S. survey by McKinsey in April found close to half of those asked were using telehealth services—up from about a tenth from before the pandemic.

Until recently, telehealth has been a fringe industry.

But now, telehealth promises doctors access to more patients at lower costs.

I agree with some that liken telehealth services to Shopify, which facilitates customer access for multiple online vendors.

And for patients, it’s nice to have access to a doctor at the tap of a finger.

There are a number of companies in this sector, many of which are still private. However, the premier company in the sector is publicly traded—and its stock has been on quite a ride.

Teladoc – Telehealth Leader

The company is Teladoc Health (TDOC).

Teladoc CEO Jason Gorevic was bubbling with enthusiasm during a presentation at the 2021 JPMorgan Healthcare Conference. And it’s easy to see why, based on his company’s performance last year: Teladoc added several high-profile clients (including the Geisinger Health System and Tyson Foods), grew its revenues nicely, and boosted sales in 2020.

The company had already seen steady gains in visits and paid memberships since its IPO in 2015. But then, with the pandemic, millions of people in the U.S. began turning to virtual care for everything from everyday problems to more chronic health issues.

Teladoc’s ease of use is driving telehealth visits for noninfectious diseases. Visits for conditions such as hypertension, back pain, anxiety, and depression now account for more than half of general visit volume, up from approximately 33% a year earlier. In specialty care, demand for dermatology and behavioral health services is outpacing growth in overall volume.

Bottom line: Teladoc is reaping the benefits of the move to telehealth. Its number of visits overall more than doubled, from 4.1 million in 2019 to about 10.6 million in 2020, and its membership figures jumped from 36.7 million to between 50 million and 51 million people.

The company’s revenues roughly doubled from $553 million in 2019 to over $1 billion in 2020. One major reason for that was that two-thirds of Teladoc’s sales included bookings for multiple products, which rose 35% year over year. Over 80% of its revenue is generated by U.S. membership fees, which vary across clients depending on the contract. On average, the access fee is about $1.00 per member per month and is used to cover the addition of new members and marketing efforts to increase awareness of available services.

Additionally, each virtual member visit to Teladoc’s providers incurs a separate fee, which on average is $45 per primary care visit. Each visit does generate positive gross margins. This suggests that its reported operating losses are largely attributable to building its telehealth infrastructure as well as those marketing expenses.

Teladoc’s Healthy Future

Teladoc has tremendous growth potential, thanks to its acquisition of Livongo in October 2020.This was a deal, I might add, that Wall Street (with its short-term focus) hated.

Livongo is a chronic virtual care company, which boasts a suite of connected healthcare devices. These include connected blood pressure cuffs and glucose meters—tools that could help patients avoid dangerous lapses in care as well as unnecessary doctor’s visits.

Livongo’s analytics technology and database will provide new avenues of growth for Teladoc. It will also allow Teladoc to do more continuous monitoring of patients and offer more virtual-first primary healthcare.

In addition, Livongo will provide AI-driven solutions for chronic care management in diabetes, hypertension, behavioral health and weight management. Livongo’s tools will enable greater member engagement and should help to improve treatment outcomes.

This will fill a need. According to the Journal of the American Medical Association (JAMA), care for chronic conditions like diabetes and hypertension fell during the pandemic. One big reason was that doctors couldn’t perform blood pressure and glucose tests remotely.

Of course, Teladoc does face some uncertainty about its future. One question will be whether the Biden administration will make permanent the regulatory changes that increased telehealth availability. Another may be if Teladoc can add U.S. government payers, thanks to a rather recent government approval to use telehealth services.

The largest obstacle, though, may be the diverse (and continually changing) regulations across the country.

Despite the cost benefits of telehealth, regulators and states have been slow to ease regulations and reimburse these services due to concerns of fraud/privacy breach and quality. Only 29 states and the District of Columbia support the reimbursement of virtual visits.

Teladoc may still not be profitable this year, but I expect it will be profitable beginning in 2022. And solid growth should continue over the remainder of the decade.

That’s why I’m calling Teladoc Health a 5-star stock. It can be bought at any price up to $350 a share, although I prefer a price below $275 a share. Don’t forget that brokerage firms now allow you to buy fractional shares of a stock.

— Tony Daltorio

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Source: The Growth Stock Advisor