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Should Teladoc Worry About Amazon's Virtual Healthcare Move?

Zacks Equity Research

Shares of Teladoc Health, Inc. TDOC fell by 2.8% as investors grew jittery on the news that the ecommerce giant Amazon.com Inc. (AMZN) has entered the telehealth industry by launching Amazon Care —a pilot health care program that includes virtual as well as care at home options. Notably, Amazon has a legacy of disrupting any business that it enters.

Teladoc, in the near future, will not likely face any competition from Amazon given the fact that the service is in pilot phase and only available to Amazon’s employees in the Seattle area. Selling this service commercially for Amazon would take at least 2-3 years, which will provide Teladoc time to further increase its market share. This should be possible given its wide ranging network of caregivers and a rapidly growing demand for telehealth services.

However, if Amazon plans to sell its virtual health care services, it may choose to utilize an existing medical network provider to gain instant access to the telehealth industry. In such a scenario,  Amazon’s tie-up with Teladoc will open up new revenue-generating avenues for the latter company.

On the same day, CMS announced that over 50% of Medicare Advantage (MA) plans, representing approximately 13.7 million beneficiaries will have access to telehealth for plan-year 2020.  This implies that telehealth services will be covered under MA plans. Notably, this should drive revenue and membership growth for Teladoc.

Also, Teladoc is poised to grow on a number of tailwinds, such as expanding international operations, partnership with Vida Health that provides virtual chronic disease management programs to members of large payer and employer group populations across the United States and on boarding on UnitedHealthcare’s network (this month) as the national Virtual Visit provider.

Thus, Teladoc with a Growth Style Score of A, looks poised for growth based on its operating strength and first-mover advantage in the telehealth industry.

The company’s valuation at current level looks attractive with a trailing 12-month price-to-book ratio of 4.9 compared with the industry’s 17.2. The stock carries a Zacks Rank #3 (Hold).

Year to date, the stock has gained 39.2%, compared with its industry's decline of 13%.

Some better-ranked stocks in the same space are Medpace Holdings, Inc. MEDP, Avedro, Inc. AVDR and LHC Group, Inc. LHCG. While Medpace sports a Zacks Rank #1 (Strong Buy), Avedro and LHC Group carry a Zacks Rank #2 (Buy).

You can see the complete list of today's Zacks #1 Rank stocks here.

Medpace and LHC Group have surpassed earnings estimates in each of the four reported quarters with an average positive surprise of 4.24% and 12.9%, respectively.

Avedro has posted positive earnings in two of the four reported quarters with an average positive beat of 9.15%.

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