4 Stocks to Buy From the Prospering Dental Supplies Industry
The Zacks Medical - Dental Supplies industry in the Medical sector has shown a positive trend in 2023 as product sales grew again. The rebound in sales of dental products and services is mainly due to the easing of pandemic-related restrictions in the past few years. Also, the major players in the industry have been taking initiatives to improve their margins post the pandemic, including cost cutting and price improvement. The dental market is also driven by the high rate of oral diseases, an aging population, the increasing demand for cosmetic dentistry and technological innovations. It is expected to keep growing as the dental industry adapts and develops new treatments and procedures to meet the changing needs of patients. Going by the Fortune Business Insight data, the global dental industry is expected to reach $63.93 billion by 2029 at a CAGR of 7.4% (from the 2022 level).
However, the current rising interest rate regime will continue to increase the cost of capital. Other macro headwinds like supply-chain constraints are hurting the margins of the industry players. These are likely to continue in 2023, subduing earnings growth. Industry participants like McKesson MCK, West Pharmaceutical Services WST, Align Technology ALGN and Henry Schein HSIC have shown encouraging trends amid uncertain times and are likely to gain from the existing market opportunities.
Industry Description
The global dental industry consists of companies that design, develop, make and market dental products, such as consumables, laboratory products and specialty items. Some of these companies also offer software and systems for practice management, patient education and office administration. Dental stocks have been attracting attention amid recovery in sales after the weakness faced amid the pandemic-induced disruptions. The market has been recovering and maintaining its position. Notably, dental care is being provided safely, following the advice and recommendations of the American Dental Association and CDC. Thanks to the rebound seen by the companies in this space, patient volume has been increasing steadily despite the COVID-19 uncertainty.
Major Trends Shaping the Future of the Medical Dental Supplies Industry
Increasing Burden of Oral Diseases and an Aging Population: The dental equipment market in the United States is being driven by the country's growing geriatric population. This group is a significant demographic in dental surgeries and other dental practices. Per the United States Census Bureau, the country had 54.1 million people aged 65 and above in 2020. Old age increases the likelihood of dental issues such as cavities, root and coronal caries, and periodontitis. Consequently, the rising number of seniors in the country is a key contributor to the growth of the market.
Demand for Esthetic and Cosmetic Dentistry: The dental equipment market in the United States is growing due to the demand for esthetic and cosmetic dentistry. People, influenced by Internet strategies, current trends and media coverage, want to improve their dental appearance. Cosmetic dentistry, which started in the United States, has led to many innovations in the field. Patients in the country are looking for procedures that can enhance their smile, as well as restore dental function. This trend is boosting the growth of the U.S. dental equipment market.
Technological Advancements: Dental procedures are changing with new technologies like digital imaging, laser dentistry and CAD/CAM systems. These technologies make treatments more accurate and effective, leading to better results. Also, new materials have been developed that are stronger, more compatible and attractive, giving dental practitioners more options for supplies.
Zacks Industry Rank
The Zacks Medical Dental Supplies industry falls within the broader Zacks Medical sector.
It carries a Zacks Industry Rank #56, which places it in the top 22% 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 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.
Before we present a few dental supply 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.
Industry Performance
The industry has outperformed its sector as well as the S&P 500 Composite in the past year.
Stocks in this industry have collectively gained 22.5% compared with the Zacks Medical sector’s growth of 2.2%. The S&P 500 has gained 13.6% 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) ratio, which is commonly used for valuing medical stocks, the industry is currently trading at 18.3X compared with the S&P 500’s 18.4X and the sector’s 21.3X.
Over the last five years, the industry has traded as high as 20.97X and as low as 14.9X, with the median being 18.6X, as the charts show.
Price-to-Earnings Forward Twelve Months (F12M)
Price-to-Earnings Forward Twelve Months (F12M)
4 Promising Dental Supply Stocks
McKesson is a healthcare 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. It also 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 the U.S. markets, especially for pharmaceutical and specialty solutions, drove McKesson’s top line by 10.9% year over year in the first quarter of fiscal 2024. The growth in the distribution of specialty products to providers and health systems, and increased contributions from its generics program aided the top-line improvement. However, inflationary pressure continues to hurt margins. The company expects adjusted earnings per share (EPS) in the range of $26.55-$27.35 for fiscal 2024.
For this San Francisco, CA-based company, the Zacks Consensus Estimate for fiscal 2024 revenues indicates growth of 10.9% from the year-ago reported figure, while the same for earnings implies an increase of 4.4%. McKesson has a trailing four-quarter average earnings surprise of 8.10%. Presently, the company carries a Zacks Rank #2 (Buy).
Price and Consensus: MCK
West Pharmaceutical Services is a leading global manufacturer with respect to the design and production of technologically advanced, high-quality, integrated containment and delivery systems for injectable drugs and healthcare products. It operates under two segments — Proprietary Products and Contract-Manufactured Products. The Proprietary Products segment provides packaging, containment and drug delivery products, together with analytical lab services and other integrated services and solutions mainly to biologic, generic and pharmaceutical drug customers. The Contract-Manufactured Products segment acts as a fully-integrated business, which remains committed toward the design, manufacture and automated assembly of complex devices.
Continued strong demand for WST’s high-value products fueled its top-line growth in the second quarter of 2023. The Pharma and Generics market units demonstrated robust organic growth during the quarter. However, declining sales related to COVID-19 vaccines continue to hurt the Biologics market unit.
West Pharmaceutical Services expects EPS in the $7.65-$7.80 range for 2023.
The Zacks Consensus Estimate for fiscal 2023 revenues indicates growth of 3.3% from the year-ago reported figure, while the same for earnings implies a decline of 8.5%. WST has a trailing four-quarter average earnings surprise of 12.47%. It carries a Zacks Rank of 2 at present.
Price and Consensus: WST
Align Technology manufactures and markets a system of clear aligner therapy, intra-oral scanners and CAD/CAM digital services used in dentistry, orthodontics and dental records storage. The initial adoption of the recently launched Invisalign Comprehensive product was favorable and holds potential for faster revenue recognition than the traditional ones.In the next one to three years, Align Technology expects to strengthen its existing offerings with the newest technologies and innovations.
The company’s top line gained 3.3% in the last reported quarter and also beat the Zacks Consensus Estimate by 1.7%. Revenues from the Clear Aligner segment reflected higher volumes, increased Average Selling Prices and higher non-case revenues. Meanwhile, the strengthening of the U.S. dollar against nearly every other major currency hampered Align Technology’s revenues in the international markets. The company expects total revenue growth of 11-13.5% for the third quarter of fiscal 2024. ALGN anticipates its adjusted operating margin to be slightly up on a sequential basis as it continues to prioritize investments in R&D and go-to-market activities.
The Zacks Consensus Estimate for fiscal 2023 earnings and revenues indicates year-over-year growth of 6.6% and 13.1%, respectively. Currently, the company holds a Zacks Rank of 2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Price and Consensus: ALGN
Henry Schein is a leading distributor of health care products and services across the globe, Henry Schein serves office-based dental, medical and animal health practitioners, dental laboratories, government as well as institutional health care clinics and other alternate-care sites. Additionally, the company offers other value-added services such as practice management software, e-commerce solutions and an array of financial services. Henry Schein boasts a wide global footprint with 61 distribution centers. Apart from North America and Canada, the company has its presence in Australia and New Zealand as well as in emerging nations like China, Brazil, Israel, the Czech Republic and Poland. HSIC’s worldwide reach provides it with a major competitive advantage over other players in the healthcare distribution industry.
In the second quarter of 2023, the company performed well. Growth in the Technology and Value-added Services business was strong in the international market during the second quarter, banking on the strength of the Dentally cloud-based solution. Development in North America was driven by the sales of its practice management software. Sales growth in the Medical business continued to be robust, reflecting higher patient traffic to alternate care sites. Widespread network and channel mix and favorable long-term trends in the dental business are likely to drive future growth. However, severe currency headwinds and lower sales of PPE and COVID-19 test kits are likely to continue to hurt the top line in 2023. Henry Schein expects sales growth of nearly 1-3% in 2023 year over year.
For this Melville, NT-based company, the Zacks Consensus Estimate for 2023 earnings and revenues indicates an increase of 9.6% and 1.5%, respectively. The bottom-line estimate has improved 0.2% in the past 60 days. HSIC has a trailing four-quarter average earnings surprise of 0.82%. Currently, the company carries a Zacks Rank #2.
Price and Consensus: HSIC
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McKesson Corporation (MCK) : Free Stock Analysis Report
Align Technology, Inc. (ALGN) : Free Stock Analysis Report
Henry Schein, Inc. (HSIC) : Free Stock Analysis Report
West Pharmaceutical Services, Inc. (WST) : Free Stock Analysis Report
