The COVID-19 pandemic — a biological crisis of unprecedented nature — altered the nature and dynamics of the healthcare industry. The Zacks Medical - Dental Supplies industry bore the brunt of the closure of dental practices and lower patient visits due to the risk of exposure to the virus. However, the dental market has experienced substantial recovery, primarily owing to the easing of prior restrictions and mass vaccinations. Apart from this, rising dependence on Artificial Intelligence (AI) & Robotics and teledentistry and an increase in the number of patient visits are likely to help the industry thrive in the near term.
However, inflationary, labor-shortage and supply-chain headwinds are hurting margins of the industry players. These headwinds are likely to continue in 2023, subduing earnings growth. Industry participants like Becton, Dickinson and Company BDX and McKesson MCK, AmerisourceBergen ABC have shown resiliency despite uncertain conditions and are likely to gain from the existing opportunities.
This industry primarily comprises designers, developers, manufacturers and marketers of dental consumables, dental laboratory products and dental specialty items. Some of the industry participants also provide practice management and clinical software, patient education systems, and office forms and stationery. Dental stocks have been gaining significant attention post the weakness witnessed during the pandemic-induced disruptions. This space has continued to show signs of recovery and held its ground. Notably, dental care is being delivered safely, following the guidance and recommendations of the American Dental Association (“ADA”) and CDC. Backed by the rebound witnessed by the companies in this space, patient volume continues to see an encouraging increase despite the COVID-19 risks.
Major Trends Shaping the Future of the Medical Dental Supplies Industry
Rising Dependence on Teledentistry: Following the COVID-19 outbreak, most dental practices were unable to offer routine services in the office. Teledentistry, which is a provision to offer dental services through interactive video, audio or other electronic media to provide consultation, diagnosis and treatment, helped clinicians and patients amid this crisis. Dependence on teledentistry is expected to continue even as the pandemic eases as it enhances patient care. The introduction of digital solutions has helped dental professionals to conduct video consultations with existing patients, thereby enhancing treatment efficiency.
Digital Influence: The latest technologies help dentists in carrying out minimally-invasive procedures that ensure precision and efficiency, thereby reducing patients’ trauma. The industry players actively promote digital workflows for general dentistry and dental specialties. Further, dental 3D printers are revolutionizing dentistry. These reduce time and cost through efficient utilization of orthodontics and dental practices. In fact, dental 3D printers became mainstream in 2020.
AI & Robotics: AI has been shaping the dental industry for quite some time now. This decade is likely to see the rise of computing power, which has become more accessible and affordable for dental practitioners. It will transform the way dentists work, and patients receive treatment, especially with the introduction of robot dentists. Robots are now able to perform minimally-invasive dental work like filling cavities and extracting teeth. A report by National Business Capital & Services suggests that AI dentistry had already become mainstream by 2019-end.
Zacks Industry Rank
The Zacks Medical Dental Supplies industry falls within the broader Zacks Medical sector.
It carries a Zacks Industry Rank #186, which places it in the bottom 26% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all member stocks, indicates bleak near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.
Before we present a few dental supplies stocks that you may want to consider for your portfolio, let’s take a look at the industry’s recent stock-market performance and valuation picture.
The industry has outperformed its own sector in the past year as well as the S&P 500 composite in the same time frame.
Stocks in this industry have collectively declined 14.6% compared with the Zacks Medical sector’s decline of 20.9%. The S&P 500 has declined 19.7% in the same time frame.
One-Year Price Performance
Industry's Current Valuation
On the basis of the forward 12-month price-to-earnings (P/E), which is commonly used for valuing medical stocks, the industry is currently trading at 16.59X compared with the S&P 500’s 16.9X and the sector’s 21.94X.
Over the last five years, the industry has traded as high as 20.13X and as low as 13.39X, with the median being at 17.44X, as the charts below show.
Price-to-Earnings Forward Twelve Months (F12M)
Price-to-Earnings Forward Twelve Months (F12M)
3 Promising Dental Supplies Stocks
McKesson: It is a health care services and information technology company. McKesson operates through two segments. The Distribution Solutions segment distributes branded and generic pharmaceutical drugs along with other healthcare-related products worldwide. The segment also provides practice management, technology, clinical support and business solutions to community-based oncology and other specialty practices. In addition, the segment provides specialty pharmaceutical solutions for pharmaceutical manufacturers. The Technology Solutions segment provides enterprise-wide clinical, patient care, financial, supply chain and strategic management software solutions.
Strong growth in U.S. markets, especially for pharmaceutical and specialty solutions, drove McKesson’s top line 5.4% year over year during the second quarter fiscal 2023 ending September. An increase in prescription from third-party logistics as well as higher technology services revenues also aided top-line growth. However, rising costs amid ongoing supply chain challenges continue to hurt margins. The company projects adjusted EPS in the range of $24.45 to $24.95 for fiscal 2023.
For this San Francisco, CA-based company, the Zacks Consensus Estimate for fiscal 2023 revenues suggests growth of 4.3%, while the same for earnings indicates an increase of 4.5%. It has a trailing four-quarter earnings surprise of 4.79%, on average. Presently, the company carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Price and Consensus: MCK
Becton, Dickinson and Company: Becton, Dickinson and Company, commonly known as BD, is a medical technology company engaged principally in the development, manufacture and sale of medical devices, instrument systems and reagents. In its fourth quarter fiscal 2022 ending in September, the company is expected to achieve earnings growth of nearly 5.4%. BD’s Medical and Interventional segments are likely to continue their robust performance in the fiscal fourth quarter. However, its Life Sciences segment sales are likely to decline due to lower COVID-only testing.
We note that BD generates a substantial amount of its revenues from international operations. The revenues BD reports with respect to its operations outside the United States may be affected by fluctuations in foreign currency exchange rates. BD expects its fiscal year revenues to be in the range of $18.75 billion-$18.83 billion and adjusted earnings per share in the range of $11.28-$11.35. The company carries a Zacks Rank #3 (Hold).
However, for this Franklin Lakes, NJ-based company, the Zacks Consensus Estimate for fiscal 2022 revenues indicates a decline of 7.1%, while the same for earnings suggests a decline of 13.5%. It has a trailing four-quarter earnings surprise of 11.85%, on average.
Price and Consensus: BDX
AmerisourceBergen: It is one of the world’s largest pharmaceutical services companies, which focuses on providing drug distribution and related services to reduce health care costs and improve patient outcomes. Per management, its position as the leader in global specialty logistics services drove compelling volume growth and overall performance for the company. Strong organic growth rates in the U.S. pharmaceutical market, improving patient access to medical care, enhanced economic conditions and population demographics are likely to favor the company in the quarters to come.
AmerisourceBergen’s top line gained 3.8% during the last reported quarter. It also beat the Zacks Consensus Estimate by 1.5%. An increase in specialty product sales coupled with overall market growth drove the top line. However, lower revenues from commercial COVID-19 treatments are hurting the growth. The company expects total revenues to grow by 5-7% in fiscal 2023 and adjusted earnings by 2-5%.
For this Chesterbrook, PA-based company, the Zacks Consensus Estimate for fiscal 2023 revenues and earnings suggests an increase of 3.9% and 4%, respectively. Currently, the company carries a Zacks Rank #3.
Price and Consensus: ABC
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