Needham Downgrades Livongo After Teladoc Deal, Q2 Print

The strong momentum in Livongo Health Inc’s LVGO business continued in the second quarter, and the company’s merger with Teladoc Health Inc TDOC will create a leading virtual health care platform, according to Needham.

The Livongo Health Analyst: Scott Berg downgraded Livongo Health from Buy to Hold and eliminated the price target.

The Livongo Health Thesis: Livongo's revenue and member additions were meaningfully higher than its second-quarter pre-announcement on July 8, Berg said in the Thursday downgrade note. (See his track record here.)

The company reported quarterly revenue of $91.9 million, representing 124.8% year-on-year growth and significantly higher than Needham’s estimate of $86.5 million. Earnings of 11 cents per share also handsomely beat Needham's 4 cents per share estimate, the analyst said. 

Livongo announced plans to merge with Teladoc to “create the leading consumer centered virtual care platform focused on solutions for whole-person care to improve health outcomes with lower costs,” Berg said. 

The deal, at a total of $18.5 billion, offers a premium for Livongo’s shares and represents a valuation of nearly 35x of fiscal 2021 revenue, the analyst said. 

Although the concerns around achieving the proposed sales synergies exerted pressure on Teladoc’s stock, the analyst Berg said management has a “reasonable” plan.

LVGO Price Action: Shares of Livongo Health were trading 3.7% higher at $132.80 at last check Thursday. 

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