Is Teladoc Stock A Buy?

Teladoc Health (NYSE:TDOC) share price has experienced quite a bit of volatility since the company acquired Livongo Health (NASDAQ:LVGO) in early August.

This $18.5 billion deal merged the telehealth giant with a leading digital health monitoring company in the aftermath of the largest pandemic in generations.

Both schools and workplaces around the country and world moved to a virtual environment, and accessing a medical professional remotely can be a lifesaver for many in need. So, is Teladoc stock a buy?

As 2020 saw shares increase from $82.96 on January 3 to highs over $200 by the end of August. Livongo stock followed suit, increasing from $25.16 to over $100 in the same timeframe. Being at the right place at the right time is paying off well so far for these companies, but analysts also downgraded each stock to Hold.

Let’s dive into both companies, the important aspects of the merger, and explore how the company plans to succeed moving forward. First, we’ll discuss the dip.

Why Did Teladoc Stock Drop?

Teladoc’s acquisition of Livongo sent waves across the industry. Both companies are leaders in their respective lanes, and the merger of assets creates a force to be reckoned with in the next evolution of healthcare.

However, each of these companies is less than 20 years old, and mergers aren’t easy to pull off. A quick flashback in history highlights how even experienced companies struggle to pull off such deals.

For example, American Online acquired Time Warner, for example, the consolidated company suffered greatly when the dot-com bubble burst, creating a difficult road ahead.

Everyone’s role, from the c-suite to entry level, is important in ensuring all the proprietary software, internal networks, workstations, and other equipment works in tangent with each other.

This process can last years, as seen when Bank of America acquired Countrywide Home Loans and had to integrate Windows NT-based software and workflows into Windows XP-based workstations at a time when consumers were upgrading to Windows 7.

Both Teladoc and Livongo stock are tied together with the announcement, and for now, analysts are simply adjusting Teladoc’s grade to match Livongo until the merger is completed for shareholders. This leaves questions as to what will happen to both stocks’ holders when that occurs.

Is Teladoc Stock A Buy?

When the deal closes by the end of 2020, each Livongo share will be converted into 0.5920 shares of Teladoc stock, plus a cash dividend of $11.33.

This caused the market to adjust and gave a second-chance opportunity to buy Teladoc at a temporary lower price by the middle of August. By the end of the month, the price returned to its post-news trajectory for the time being.

Shareholders will also be diluted in the process, as Livongo shares represent a 60% increase in the total shares held, which will inevitably lead to another market adjustment.

Still, both companies are generating massive revenues in the aftermath of the COVID-19 outbreak. In fact, the U.S. Department of Health and Human Services reports a 50% increase in Telehealth utilization among Medicare patients.

People are continuing to avoid routine and voluntary healthcare visits because of risks associated with the outbreak.

Not only do many wish to avoid contracting the virus itself, but also economic uncertainty around employment, housing, and health insurance is causing fewer visits.

Virtual healthcare seems like an easy answer, but doctors have a hard time diagnosing issues with patients who can’t provide vital data.

The average household may not have the proper tools to check blood pressure, glucose levels, heart rate, and other issues. Livongo’s specialized medical equipment provides this information, making telemedicine more effective than ever. Of course, it’s not going to be an easy path.

Risks of Buying Teladoc Stock

Share prices for both Livongo and Teladoc are likely to be rocky for the remainder of 2020.

In addition, there are still some very real barriers in the way of mainstream telehealth. Cybersecurity, for example, is still a major concern – botnets are among the most common hacks these days, and they don’t always target computers or smartphones. Instead, connected medical devices, like heart rate monitors and more, are often more vulnerable.

When Zoom took center stage as a video chat app at the onset of the coronavirus pandemic, it didn’t take long to learn the platform’s video calls weren’t secure. Zoombombing became a term in 2020 as these calls were interrupted by pranksters or worse.

It wasn’t long before the shine started to wear on the company. Should Teladoc be hit with a major attack like this, it would be even more detrimental because of the involvement of medical data.

A single HIPAA violation could be a PR disaster for Teladoc, and this risk is happening at a time when cybercrime against healthcare is at an all-time high.

Teladoc has a bright future ahead of it, but it’s not growing that big without taking a few licks. It’s also not the only player in the game.

Which Companies Compete With Teladoc?

Although Teladoc is the largest, there are plenty of telemedicine competitors, like Doctor on Demand, American Well, iCliniq, and MDLive.

These providers connect patients with a range of specialists across physical and mental health professionals. As these companies continue to grow, they’ll need to secure contracts and approval from insurance providers, healthcare providers, and more. It’s a sales game from this point, and it’s not necessarily the best technology that will win.

With that said, Teladoc has a head start on the competition and an early lead that’s only being expanded with its latest acquisition. While some may not see the connection between the two, the execs at Teladoc are clearly steering this ship toward a first-place win.

Does Teladoc Stock Pay Dividends

A possible drawback for income-oriented investors about Teladoc stock is that you may not get paid any dividends for the remainder of the year, according to the company’s investor relations team.

The cash payout for Livongo shareholders will take that money instead, which may leave some investors soured in the short term.

If you believe in the long-term viability of the company though, it could continue its growth trajectory for several years to come. 

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.