Morgan Stanley: Buy The Dip In Livongo Health

Shares of Livongo Health Inc LVGO have lost nearly 20% since its late July IPO, and investors should take advantage of the discount valuation, according to Morgan Stanley.

The Analyst

Ricky Goldwasser upgraded Livongo Health from Equal-weight to Overweight with an unchanged $42 price target.

The Thesis

Livongo is a digital health platform that motivates people to better manage chronic diseases, including diabetes.

The company addresses a $6.3-billion market size for diabetes management, but new programs that address hypertension could expand its total addressable market by around 63%, Goldwasser said in a Wednesday upgrade note. (See her track record here.) 

Hypertension is expected to grow from 2% of Livongo's revenue in the second quarter to 10% by the end of 2021, as 20% of all members on the platform use more than one product, the analyst said. 

Investors face a potential catalyst as soon as the second-quarter report on Sept. 5, as the company teased certain metrics in a July S-1 filing, she said.

Livongo highlighted a diabetes membership base stood of 193,000 and total client count of 720.

The company's total contract value was not provided, and it could prove to be vital for the stock's sentiment, as it quantifies the long-term opportunity, Goldwasser said. 

From a valuation perspective, shares of Livongo are trading at 11.5 times EV/revenue on 2020 estimates, which is more than a five-turn discount to the peer group at 16.8 times.

The discount may not be justified given the company's superior top-line growth profile, first-mover advantage and expanding total addressable market, according to Morgan Stanley. 

Price Action

Livongo shares were trading higher by 1.04% at $30 at the time of publication Wednesday. 

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Photo courtesy of Livongo.