3 Medical Services Stocks to Buy as Industry Trends Improve
The Medical Services sector is evolving at a rapid pace. The pandemic years reshaped the market dynamics within this sector in a profound way and on a permanent basis. The need for remote monitoring and distant treatment has paved the way for digital services. Even though the pandemic has ended, digital healthcare treatment continues to be indispensable, backed by the adoption of data and analytics. Telemedicine-focused online medical and AI-powered technology services, which flourished during the pandemic, continue to witness significant demand.
Going by a recent Custom Market Insights report, the global Smart Healthcare Products market was valued at $145.9 billion in 2023 and is expected to reach $485.71 billion by 2032, at a CAGR of 12.78%. Primary stakeholders — payers, healthcare professionals and patients — will benefit from the all-new insights, services and levels of experience that next-generation healthcare-related data and analytical capabilities provide. Stocks like Elevance Health, Inc. ELV, Cencora, Inc. COR and ICON plc ICLR are expected to gain the most from the rapidly transforming healthcare services landscape.
However, the pandemic significantly impacted the supply side within the healthcare space in the form of a staffing shortage, which has been lately termed as “labordemic.”. Fitch, in its October 2023 report, noted that “labordemic,” both clinical and non-clinical, will continue through 2024 if not addressed adequately.
Industry Description
The Zacks Medical Services industry comprises third-party service providers and caregivers appointed by core healthcare companies for economies of scale. The industry includes pharmacy benefit managers, contract research organizations, wireless MedTech companies, third-party testing labs, surgical facility providers and healthcare workforce solution providers, among others. Over the years, this industry has strategically moved from volume- to value-based care. This changing pattern of care calls for advanced facilities, thus increasing the need to appoint specialized external service providers. With the growing importance of effective healthcare management, the medical service industry has become an integral part of the modern healthcare system.
3 Trends Shaping the Future of the Medical Services Industry
Staffing Shortage: Despite the end of the healthcare emergency (on May 5, 2023, WHO declared the end of COVID-19 as a global health emergency), the trauma of the past few years’ uncertainty and commotion forced frontline workers like doctors and medical staff to leave the field. Added to this, a drastic increase in the aging population in recent times (about 10,000 individuals aged 59-77 are joining Medicare plans daily) has made the healthcare staffing shortage more pronounced. Going by the article, "A Public Health Crisis: Staffing Shortages in Health Care," published in Favorite Healthcare Staffing, the WHO predicts a shortfall of 15 million health care workers worldwide in 2030. The International Centre on Nurse Migration projects there will be a shortage of 13 million nurses by 2030, up from an estimated shortage of 6 million before the pandemic. Going by a Research and Markets report, the gap between healthcare demand and supply of nurses and doctors is widening and is more evident in developing countries due to the limited capacity and number of medical schools. Consequently, employment opportunities for nurses are projected to grow at a faster rate than all other occupations.
Digital Revolution: With an increase in the adoption of digital platforms within the medical device space, remote monitoring, robotic surgeries, big-data analytics, 3D printing and electronic health records are gaining prominence in the United States. A 2023 digital health market report by Grand View Research suggests that this market, valued at $211 billion in 2022, will witness an 18.6% CAGR through 2030. Other reports suggest that the companies that adopted artificial intelligence technologies witnessed a 50% reduction in treatment costs and experienced more than 50% improvement in patient outcomes.
Nursing Care Market Boom: With rising cognizance about the benefits of specialized medical caregiving, the need for healthcare workforce/staffing service providers has increased significantly. For example, the demand for nurses has increased manifold, driven by the rising incidence of chronic disorders in the United States, and is expected to be high in the days ahead. Going by a Research and Markets report, the global healthcare staffing market size is expected to reach $62.8 billion by 2030, registering a CAGR of 6.9% from 2023 to 2030.
Zacks Industry Rank Indicates Improving Prospects
The Zacks Medical Services industry falls within the broader Zacks Medical sector. It carries a Zacks Industry Rank #63, which places it in the top 25% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates bright 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.
We will present a few stocks that have the potential to outperform the market based on a strong earnings outlook. But it’s worth taking a look at the industry’s shareholder returns and current valuation first.
Industry Underperforms Sector and S&P 500
The Medical Services Industry has underperformed its sector as well as the S&P 500 over the past year. The stocks in this industry have collectively risen 6.8% during the said time frame compared with the S&P 500 composite’s rise of 30.6%. The Medical sector has improved 10.1% in the same time frame.
One-Year Price Performance
Industry's Current Valuation
On the basis of forward 12-month price-to-earnings (P/E), which is commonly used for valuing medical stocks, the industry is currently trading at 13.77X compared with the S&P 500’s 20.93X and the sector’s 23.46X.
Over the last five years, the industry has traded as high as 21.08X, as low as 12.24X, and at the median of 14.81X, as the charts below show.
Price-to-Earnings Forward Twelve Months (F12M)
Price-to-Earnings Forward Twelve Months (F12M)
3 Stocks to Buy Right Now
Below are three stocks from the Medical Services industry that have been witnessing positive earnings estimate revisions and carry a Zacks Rank #2 (Buy) each at present.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Elevance Health: Based in Indianapolis, IN, Elevance Health is one of the largest publicly traded health insurers in the United States in terms of membership. The company is an independent licensee of the Blue Cross Blue Shield Association. Strategic acquisitions and partnerships have fortified its business portfolio. Notably, a robust Medicare Advantage segment, combined with successful contract acquisitions, is poised to drive future membership growth.
Elevance Health’s 2024 expected earnings growth rate is 12.1%. The Zacks Consensus Estimate for Elevance Health’s 2024 revenues indicates a year-over-year rise of 1.5%.
Price and Consensus: ELV
Cencora: Chesterbrook, PA-based Cencora is one of the world’s largest pharmaceutical services companies, which focuses on providing drug distribution and related services to reduce healthcare costs and improve patient outcomes. Cencora is expected to benefit from the growth of generics in the long run. Strong organic growth rates in the U.S. pharmaceutical market, improving patient access to care, and better economic conditions and population demographics should drive growth.
Cencora’s fiscal 2024 expected earnings growth rate is pegged at 12%. The Zacks Consensus Estimate for Cencora’s fiscal 2024 revenues indicates a year-over-year rise of 11.5%.
Price and Consensus: COR
ICON: It is a clinical research organization (CRO). The company is a provider of outsourced development and services to pharmaceutical, biotechnology, medical device and government and public health organizations. ICON is gaining from its focused patient, site and data strategy, which is helping it to improve site identification, study placement and patient recruitment and retention. Its innovative and scaled offerings are resonating well with customers and strongly position ICON for further traction in new and existing customer accounts.
ICON’s 2024 expected earnings growth rate is pegged at 16.9%. The Zacks Consensus Estimate for ICON’s 2024 revenues indicates a year-over-year rise of 6%.
Price and Consensus: ICLR
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Elevance Health, Inc. (ELV) : Free Stock Analysis Report
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