Stephens Downgrades Teladoc Health (NYSE:TDOC) on Increasing Competition

Every situation produces a certain number of winners. Even disastrous situations like the coronavirus pandemic produced a few winners, especially for segments with “from-home” somewhere in their concepts. “Work-from-home,” “exercise-from-home,” and “shop-from-home” were among the big winners in the coronavirus, and for Teladoc Health (NYSE:TDOC), “see-the-doctor-at-home” proved to be one of the biggest slam-dunks around. However, every Cinderella story eventually features midnight, and for Teladoc, that midnight may have just sounded.

A Shot in the Chops

The latest hit to Teladoc's Cinderella story came when the glass slipper that was Stephens fell off, and with it, lowered Teladoc's rating from “overweight” to “equal weight.” The news that went with it wasn't all bad, but Stephens basically rang in with a note of the obvious: while Teladoc would continue to see patients, and see increases in such visits, it would no longer be the only big name in the field as new competitors would get in on the action.

Such an assessment isn't really a surprise, unless you feel like pointing out that someone should have pointed this out well before now. Teladoc's explosive growth is a signal for just about anyone else out there that both doctors and patients alike like the notion of having a doctor's appointment that takes place wholly inside the patient's own home.

That makes telehealth measures valuable to both parties, and improves the chance of adoption. Those who want to get in on the market, meanwhile, have a market that's increasingly amenable, and anyone who can get their product in front of customers first has the best chance of being adopted. Anyone who comes along after that has to make a much stronger case in order to affect change, and that's seldom easy without offering either many more features or a vastly reduced price.

Bucking the Trend

While the word from Stephens wasn't exactly good news, there is some good news to be had in the broader consensus. Based on our latest research, the wider analyst community finds Teladoc to be a “buy”, and has found it such for the last three months, with an improving ratio to boot. Three months ago, the company had 11 “hold” ratings and 16 “buy” ratings on it. A month ago, that improved to 11 “hold” and 17 “buy”, which is still where it is today. By way of reference, six months ago, the company was at 13 “hold” and just 11 “buy”, which made it merely a hold.

The consensus price target, meanwhile, has been on the rise ever since. Six months ago, it was at $161.17. Today, it's at $229.66, and that's quite feasible given the company's current price of $200.17 as of this writing.

It's worth noting that, while the consensus is still calling for a buy-in progress, the latest moves have been a little less bullish. So far this month—all six days of it—Goldman Sachs came out with coverage that called Teladoc “neutral,” while Bank of America maintained its own neutrality on the stock. The last bullish upgrade came from Robert W. Baird back in mid-November.

If You Offer It, They Will Stay Home

So, yes; it's a safe bet that Teladoc will see increasing competition in the months to come. Why not? It's already abundantly proven that doctors and patients alike are pretty happy with telemedicine options. The market is there; why wouldn't other businesses want to try and carve out a slice of that market pie for themselves?

However, even as other competitors step into the market, they will likely find it comparatively inhospitable. Those who already have Teladoc systems in place will need to be counter-sold, and most marketing operations will make it clear that that's the biggest challenge. In counter-selling, not only does the sales rep have to convince the customer that they're worth buying, but they're also so worth buying that it's worth clearing out the last guy. That means overcoming customer inertia; no one wants to make those kinds of changes without a compelling reason to do so. This is particularly true in a heavily-regulated field like medicine; it's already a challenge to bring in new technology while making sure all the government-related punctilio are observed.

Stephens is right that there will be growing competition to Teladoc. However, that competition is going to have to scramble to get to people Teladoc hasn't already hit. Unless that hypothetical competition can find a lot of untapped market, or make itself such a value that current Teladoc customers will throw over an already-established solution, the competition's impact on the market will be incidental at best.