KeyBanc: 6 Reasons To Buy Teladoc

Checks at the recent Health Care Information and Management Systems Society conference and follow-up discussions with Teladoc Inc TDOC have made KeyBanc Capital Markets incrementally positive on the company, the firm said in a Wednesday note. 

The Analyst

Analyst Donald Hooker reiterated an Outperform rating on Teladoc and lifted the price target from $41 to $50, suggesting 16-percent upside from current levels.

The Thesis

• Teladoc is experiencing strong growth in its emerging hospital and health system business, Hooker said in a Wednesday note. About 75 percent of health systems now offer or plan to offer telehealth services, the analyst said. Hooker expects the hospital and health system to double revenues again in 2018.
• Behavioral health is foundational to the growth narrative at Teledoc, Hooker said. The company's behavioral health revenue has  more than doubled annually over the last few years, the analyst said. In 2018 and 2019, KeyBanc expects this segment to add about 1,000 basis points to revenue growth.
• Hooker sees significant emerging opportunity for Teladoc in Medicare Advantage, as a recent law allows MA plans to include telehealth services in their bids to CMS starting in 2020. The analyst said he proejcts a sizeable $500-million-plus greenfield revenue opportunity from MA beyond 2019.
• KeyBanc expects the company to break even on a free cash flow basis and achieve positive free cash flow in 2019.
• Teladoc has notched early successes in gain-sharing and performance-based contracts, with a contract with Aetna Inc AET performing ahead of expectations, according to KeyBanc. 
• Teladoc's cross-selling related revenue synergies in the 2018/2019 benefits enrollment season are expected to benefit from the company's recent acquisition of Best Doctors. The company sees a $200-million run-rate subscription fee revenue opportunity in the U.S. employer market alone from cross-selling, Hooker said. 

The Price Action

Teladoc shares have more than doubled over the past year and ended Wednesday's session up modestly at $42.95.The stock was trading down more than 1 percent in Thursday morning trading. 

Related Links:

Analyst: We're Downgrading Teladoc, But We Remain Very Bullish

This IPO Could Mean Access To A Doctor Anywhere, Anytime