Teladoc Health: Weight Management Rescue (NYSE:TDOC)

The telehealth sector has been under massive pressure since the Covid spike, and the weight loss management opportunity is finally sparking interest in virtual care again. Teladoc Health (NYSE:TDOC) has the leading virtual care platform and the expectations are for the company to benefit via their chronic care management tools. My investment thesis is ultra Bullish on the already cheap stock, though the company has to turn around the decelerating growth rates for the stock to turn up for good.

Weight Loss Programs

The high costs for obesity medicines, marketed by Novo Nordisk (NVO) (OTCPK:NONOF) as Wegovy and Eli Lilly (LLY) as Zepbound, have corporations looking for management tools to ensure employees are wisely using these costly drugs. The drugs known as GLP-1 receptor agonists come at a list price of more than $1K.

As the economy enters 2024, employers appear a lot more interested in covering these costs according to Teladoc executive Ananth Balasubramanian:

Many (employers) were skeptical about the cost of these drugs at the beginning of the year, but that mindset has shifted. Employers and health plans are now increasingly more willing to cover them, with the right programs in place.

Aon (AON) outlined a program requiring 1 to 3 months of lifestyle changes before GLP-1 drugs could be prescribed. These programs require diet and exercise before employees can get access to the drugs, and virtual healthcare providers like Teladoc Health can provide the tools to manage these step-therapy programs.

At the recent JPMorgan Healthcare conference, Teladoc Health CEO Jason Gorevic reinforced this client shift:

Second is what I would call a coach enhanced program, which has all of those solutions. There’s a coach engaged. And a lot of clients are looking for that either as a partner along with GLP-1s for people who have already been prescribed and are on GLP-1s or, quite frankly, as a precursor to someone going on GLP-1s because they’re really worried about the silver bullet approach, right? Somebody goes on GLP-1s, they don’t change anything else about their lifestyle. And then they’re hooked on it because otherwise, they’re going to get a yoyo effect. And that is a potential runaway cost.

According to Reuters, Blue Cross Blue Shield of Michigan will offer employer clients with 5 million members access to the Teladoc weight management program. The health insurer is requiring six months of diet and exercise before patients can get GLP-1 drugs.

Teladoc Health thinks customers want a full suite solution after years of plugging in parts during the Covid surge. Teladoc recently launching the weight management program helps provide a full solution of virtual care and chronic disease management.

Big 2024 Guidance Ahead

Teladoc Health is set to report Q4’23 results in the next few weeks. The company guided to quarterly results back at the end of October when reporting Q3 numbers and those estimates should generally be hit.

The consensus analyst estimates for Q4 are as follows:

• Revenue of $671.1 million (5.2% YoY)
• EPS -$0.24

The real key is the forward guidance for 2024. Investors will be watching whether growth rates will tick up with demand for the weight management loss program.

The current consensus estimates have Teladoc Health only producing revenues of $2.77 billion in 2024 for just 6% growth. Growth rates have slipped in the last few years after the 100% surge during late 2020 and into 2021.

The telehealth company has absorbed the substantial demand pull-forward during Covid when members flooded the platform to gain access to virtual health. Now the question is always whether Teladoc Health can reverse the trend of decelerating growth.

The company reported nearly 8% YoY growth in Q3 and this was the first quarter below 10%. The current consensus estimates have growth slipping to only 5% in Q4’23 based on revenues at the midpoint of guidance.

Teladoc Health is now profitable, with adjusted EBITDA targets for 2023 of at least $320 million. The stock only trades at only 9x the EBITDA targets for 2024 despite forecasts for ~10x growth.

The stock market just isn’t going to pay a premium valuation for a business where revenue growth continues to decelerate. The expectation is that Teladoc Health is able to guide up growth rates based on weight management demand, but the market will be disappointed, if this doesn’t occur.

Unfortunately, at the same JPMorgan Healthcare conference, the CEO Jason reinforced the weight management programs might not be a 2024 story:

…we believe that we’ll see more buying behavior over ’24 that will yield revenue for us in ’25.

Truist analyst Jailendra Singh projects that the market for virtual obesity drug management could reach $700 million in 2024 before hitting $9 billion in the long run. The analyst assumes costs of $30 per member per month and $50 for physician appointments.

Not sure whether the analyst is accurate on these financial targets, but Teladoc Health doesn’t appear inline to capture those revenues this year based on analyst estimates and comments from the CEO.

Takeaway

The key investor takeaway is that Teladoc Health remains a Strong Buy due to the valuation opportunity and the potential catalyst in weight loss management. The biggest question is whether this catalyst will drive numbers enough in 2024 to move the stock. Once it occurs, Teladoc Health will rally from both sales growth and multiple expansion.