Analyst On Teladoc Acquisition Of Best Doctors: 'We Like It'

The Deal

Teladoc announced Monday after the market close a deal to buy expert medical consultation company Best Doctors for $375 million in cash and $65 million of Teladoc common stock.

Best Fit

Analyst Steven Wardell expects the deal to close in July. The analyst sees Teladoc as a $182 million revenue company in 2017 and Best Doctors as a $120 million revenue company in 2017. Both the companies, according to the analyst, are poised to grow their top line at 25–30 percent in the intermediate term. The analyst also noted that Best Doctors' gross margin at 69 percent in the first quarter was close to Teladoc's 72 percent (see Wardell's track record).

What Chardan Likes About The Deal

• Best Doctors' market leadership in the expert physician network sector.
• Opportunities for expansion of addressable market.
• Cross selling opportunities to Teladoc's existing enterprise, SMB, heath plan and provider channels and international sales of telehealth.
• Teledoc's emergence as a one-stop shop.
• Reiteration of fourth-quarter 2017 adjusted EBITA guidance for break-even on a standalone basis.

Raising Price Target

Chardan raised its price target for Teladoc from $30 to $41, citing the potential for multiple expansion. The firm maintains its rating at Buy. The firm said it likes the company's move into a leadership position in a market adjacency.

"We see Teladoc as undervalued compared to its valuation peers, controlling for topline growth," Wardell said.

"As Teladoc executes and approaches adj. EBITDA breakeven, we see its valuation multiple expanding to 7.0x EV/Adj. EBITDA."

The firm indicated that its estimates are under review, as it has yet to incorporate Best Doctors into its model. Meanwhile, the firm sees Teladoc's second-quarter earnings release, scheduled for August 16, as the next catalyst.

At time of writing, Teladoc shares were down 10.06 percent at $32.20.