Baird sees Q4 opportunity in this healthcare tech despite longer-term caution

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• Baird is getting tactical in healthcare technology, highlighting a fresh pick for a short-term opportunity on a stock that it's more cautious about on a 12-month view.
• Heading into fiscal fourth-quarter earnings results - expected in February - the firm sees some upside opportunity in Teladoc (NYSE:TDOC), citing a number of factors lining up into the print.
• It's sticking with a Neutral rating on the stock, and keeping a "cautious long-term bias" on the company. But the Q4 results may offer some timely upside due to a few factors, analyst Vikram Kesavabhotla writes: (1) some tailwinds from a season likely to be dictated by the flu and the Omicron variant of COVID-19, along with disruption at a rival; (2) the next guidance updates skewing neutral-to-positive vs. expectations; and (3) some near-term valuation support after a recent pullback.
• Shares have fallen about 30% (vs. a broader market down about 4%) since a roughly in-line outlook provided at its Nov. 18 investor day, the firm notes.
• The flu season offers a tailwind, though, as management's Q1 guidance didn't contemplate a meaningful flu season - and though it's early, flu cases are up year-over-year at this point. The impact of the Omicron COVID-19 variant is unclear, but any extension to stay-at-home conditions offers an incremental tailwind to utilization now and in early 2022, Baird says.
• Meanwhile, rival Talkspace (NASDAQ:TALK) is going through a management transition with its CEO, its co-founder and its chief operating officer departing in short order over the past month.
• That distraction could offer a market share opportunity for Teladoc and increase the odds of positive execution against fourth-quarter guidance, Baird says.
• Its 2022 guidance is unlikely to be lowered in the new print - and could go up - and investor expectations for the full year have "significantly deteriorated" and are already low. And while long-term valuation is debatable, the stock may be reaching "near-term support" after a pullback that has brought it below its pre-pandemic three-year average price-earnings multiples.
• It won't upgrade amid structural concerns about the industry and the durability of Teladoc execution through all of 2022. But this quarter at least is setting up nicely for upside, it suggests.
• Its new price target is $110 (using a multiple at a slight premium to peers), implying 14% upside.