Teladoc Health Stock Has Fallen but DA Davidson and Cathie Wood See a Recovery

2022 has been a tough year for growth stocks, especially the stay-at-home winners. Teladoc Health (NYSE: TDOC), which surpassed $300 in 2021, now trades near $40. The same story has unfolded in pretty much all the stay-at-home companies.

Cathie Wood of ARK Invest and analyst Robert Simmons of DA Davidson are quite bullish on Teladoc stock. However, Wall Street is divided on the company, especially after its Q2 2022 earnings.

Teladoc Health Q2 2022 earnings

Teladoc Health reported revenues of $592.4 million in the second quarter of 2022 which was 18% higher than the corresponding quarter last year. While the growth rate might sound impressive, it’s a pale shadow of what the company reported over the last two years.

In the second quarter, Teladoc Health’s Access fee increased 20% YoY to $518.7 million while the visit fee increased 7% to $66.7 million. Its US revenues increased 18% to $521.4 million while international revenues increased 13% to $71 million in the quarter.

Its adjusted EBITDA fell 30% to $46.7 million in the quarter and it reported a $3.1 billion loss in the quarter. The loss was mainly driven by a $3 billion impairment loss. It took a $6.6 billion impairment loss in the first quarter also.

Teladoc Health 2022 guidance

Teladoc Health stock fell after the Q2 2022 earnings release. It forecast revenues between $2.4-$2.5 billion for the year with an adjusted EBITDA between $240-$265 million. For the third quarter, it forecast revenues between $600-$620 million with an adjusted EBITDA of $35-$45 million.

Citing high inflation, stronger US dollar, and falling US consumer confidence, Teladoc Health said, “We believe it’s more likely that our overall financial performance will be toward the lower end of our consolidated revenue and adjusted EBITDA guidance ranges in the second half.”

Goldman Sachs was not impressed with the earnings

Goldman analyst Cindy Motz was not impressed with Teladoc Health’s earnings and slashed its rating and target price on the stock. “While TDOC posted solid results that were ahead of expectations for 2Q22, their guidance for the 3Q22 in terms of adjusted EBITDA was considerably below our expectations by 38%,” said Motz.

While Motz is bullish on the health tech sector, she said, “While our estimates were already at the very low end of guidance, we lower our estimates further (for adjusted EBITDA) because we do not think it is likely TDOC will be able to see the considerable ramp in adjusted EBITDA margins in 4Q22 as is now implied by 2022 guidance.”

Digitization of the healthcare market

The long-term forecast for Teladoc Health stock looks positive as the healthcare market also moves towards digitization. Wells Fargo estimates the company’s total addressable market at $120 billion and forecasts an organic annualized revenue growth in excess of 20% for the next five years. Also, international expansion and mental health are expected to be the two key long-term drivers for the company.

Tech giants are also entering the health tech business and Amazon has announced the acquisition of One Medical for $3.9 billion, the largest deal for Andy Jassy. Other tech companies also see healthcare as a growth driver.

Cathie Wood is buying TDOC stock

Cathie Wood of ARK has been among the biggest backers of TDOC stock and it is the fifth biggest holding in her flagship ARK Innovation ETF (ARKK). She has been adding to the position in the stock to take advantage of the fall. ARKK crashed in 2022 amid the sell-off in its holdings, including Tesla. Wood continues to remain bullish on her stocks and believes that they offer great long-term value after the crash. The ETF has rebounded from its 2022 lows amid the recovery in markets.

DA Davidson is bullish on Teladoc Health stock

DA Davidson initiated coverage on Teladoc Health stock with a buy rating and $45 target price. “We believe Teladoc has established itself as the leader in telehealth, with operational scale and a completeness of offerings that allow it to offer differentiated service to customers,” said analyst Robert Simmons in his note.

Simmons is bullish on the healthcare digitization theme and said, “Some regulatory barriers remain to broader adoption, but physician, patient, and regulator acceptance and comfort with telehealth are all growing, and we expect its penetration to increase over time.”

Valuations of growth stocks have fallen

The valuations of growth stocks have taken a massive hit. Firstly, the Fed’s rate hikes have taken a toll on valuations. To make things worse, given the slowing growth investors are not willing to pay the premium for growth stocks as they did between 2020 and 2021.

Simmons said, “Some of this multiple contraction is a reflection of the company’s naturally slowing growth as COVID hit its anniversary, but we believe represents an over-correction.” He however added, “From here, with revenue growth likely in the upper teens, and FCF margin positive and rising, we believe the current multiple and stock price provide significant upside.”