Credit Suisse http://www.credit-suisse.com analysts suggest Teladoc (TDOC) https://www.teladoc.com will upgrade from Neutral to Outperform. Why? Credit Suisse analysists suggest that the upgrade is driven by seven key reasons:
- The company’s combining will create a behemoth in digital health which is likely to be well ahead of the competition in virtual care/RPM/Chronic care management
- Analysts have been and continue to remain bullish on LVGO’s https://www.livongo.com business model, offerings, and growth prospects
- The combination of companies makes strategic sense as it allows TDOC to not only generate incremental revenue from cross-selling the chronic care and disease management programs to their 70 million membership base but also increases the stickiness of their employer/payer clients
- Credit Suisse’s merger analysis suggests the combined company’s revenue CAGR of 30-39% over the next three years is very achievable
- Credit Suisse’s deep dive cross-sell analysis suggests upside to 2025 at $500 million revenue synergy run rate
- Cross selling opportunity in the provider market is underappreciated
- Valuations implied in our Target Price (TP) of $249 (16x 2022 PF rev) are rich but justified given confidence in our pro-forma 3 year revenue CAGR estimate of 35% (32% excluding Synergies)
TDOC shares are trading at 16.1x our PF 2021 revenue and 12.1x our PF 2022 revenue estimates. Just before the deal announcement, TDOC shares were trading at !7.0x our 2021 and 13.5x our stand-alone 2022 revenue estimates. However, TDOC shares then seemed fully valued to us given the company’s next 3 year CAGR expectation of 26% versus their PF next 3 year CAGR expectation which is now 35%.
Analysts expect TDOC shares to trade at a 16x EV/Sales forward year multiple 12 months from now. This multiple on our 2022 PF revenue estimates a yield at 12 month TP of $249, ~33% upside potential and therefore an Outperform Rating.
The 16x multiple is supported by the fact that comparable high growth SaaS/HCIT companies (companies with next two year revenue CAGR of at least 20%) are on average trading at a slight premium to TDOC (13.5x 2022 revenue vs TDOC CAGR at 12.1x) despite a 2 year revenue CAGR of 27% vs 38% proforma for TDOC.
Credit Suisse analysts have been addressing investor questions resulting from the post-deal announcement. Investors have asked a) What do analysts think of the TDOC/LVGO Combined Company vs TDOC standalone vs LVGO standalone? b) Why did TDOC prefer LVGO over a smaller sized transaction? c) How reasonable are synergy targets? d) How fast can the combined company grow? e) Do we expect a bid for TDOC or a competing bid for LVGO? f) Will TDOC shareholders vote down the deal? and G)What multiple should pro-forma TDOC trade?
Credit Cuisse analysts estimate that the combined company could generate annual revenues of ~$5 billion with annual EBITDA of ~ $1.1 billion in 2025. The analysts are also updating the TDOC model by extending projection years through 2025 and the LVGO model for 2Q20 earnings release extended projection years through 2025.
Credit Suisse has their interactive merger model available and they are updating TDOD& LVGO models. Analysts estimate the combined company could generate annual revenues of ~$5 billion, with annual EBITDA of ~$1.1 billion in 2025.
Analysts are also updating the TDOC model by extending their projection years through 2025 and for the LVGO model for 2Q20 earnings have extended projection years through 2025.
Please email jailendra.singh@credit-suisse.com if you want a copy of our interactive merger model or our standalone TDOC and/or LVGO models.