Will You Sell Teladoc (TDOC) For Reduced Earnings Visibility?

On Sep 23, 2016, telehealth insurer Teladoc Inc. (NYSE:TDOC) was downgraded to a Zacks Rank #4 (Sell), reflecting reduced earnings visibility.

Teladoc incurred significant losses in each reported period since its inception. It incurred net loss of $58.0 million, $17.0 million and $6.0 million for the years ended Dec 31, 2015, 2014 and 2013, respectively. As of Dec 31, 2015, the company had an accumulated deficit of $130.5 million.

These losses and accumulated deficit stemmed from substantial investments made by the company to acquire new clients, build its proprietary network of healthcare providers and develop its technology platform. In 2016, the company is expected to report net loss per share of $1.47 to $1.52.

The company intends to continue scaling its business to increase its clients, members and provider base, broaden its service offerings, and expand its technology applications to make its services easily accessible to members. Accordingly, the company anticipates that cost of revenues and operating expenses will increase substantially in the near future.

These initiatives may prove more expensive than what is currently estimated by the company and may not succeed in increasing its revenues sufficiently to offset high expenses. For 2016, Teladoc is expected to report a loss of $48–$50 million and net loss per share, based on 42.2 million weighted average shares outstanding, between $1.47 and $1.52.

The company’s prior losses, combined with its expected future losses, have had and will continue to have an adverse effect on its stockholders’ equity and working capital.

Moreover, the company also faces intense competition. Though the telehealth market is in an early stage of development, it is competitive, which could make it difficult for Teladoc to succeed. The company faces stiff competition from players like Doctor on Demand, Inc., American Well Corporation and HealthTap, Inc.

Teladoc also lowered its revenue and EBIDTA guidance since two large new clients that were forecast to be added in the second half of 2016 delayed their launch dates to the start of 2017. It now expects revenue in the range of $121 million to $124 million compared with the earlier estimate of $126 million to $130 million.

Also, this telehealth company has witnessed a deterioration in the Zacks Consensus Estimate for 2016 and 2017. Loss is estimated at $1.45 per share for 2016 compared with a loss of $1.25 per share 60 days ago. For 2017, loss is pegged at 76 cents per share, which is worse than 53 cents 60 days ago.

Better-ranked stocks in the insurance space include The Advisory Board Company (NASDAQ:ABCO) , AMN Healthcare Services, Inc. (NYSE:AHS) and Healthways, Inc. (NASDAQ:HWAY) .

The Advisory Board Company has witnessed a 10.4% rise in its 2016 Zacks Consensus Estimate to earnings of $1.38 per share over the past 60 days. On average, this Zacks Rank #1 (Strong Buy) company delivered a positive earnings surprise of 160.61% in the trailing four quarters.You can see the complete list of today’s Zacks #1 Rank stocks here.

AMN Healthcare Services carries a Zacks Rank #2 and has seen a 3.1% rise in its 2016 Zacks Consensus Estimate to $2.31 earnings per share over the past 60 days. On average, the company delivered a positive earnings surprise of 21.3% in the trailing four quarters.

Healthways carries a Zacks Rank #2. Its Zacks Consensus Estimate for earnings per share has surged to $2.11 from just 24 cents over the past 60 days. The company delivered a positive earnings surprise of 1587.5% on average, in the trailing four quarters.

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