5 Stocks to Buy From the Prospering Dental Supplies Industry
The Zacks Medical - Dental Supplies industry has shown promising trend so far in 2023 with product sales returning to growth. Sales of dental products and services rebounded primarily owing to mass vaccinations and the relaxation of prior restrictions in the past few years. Moreover, the major industry players have been strategizing to improve margins following the impact of the pandemic, which is boosting the bottom line. Meanwhile, the high prevalence of oral diseases and an aging population, growing demand for cosmetic dentistry and technological advancements are driving the market forward. The market is expected to keep growing as the dental industry evolves and new treatments and procedures are developed 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 2022).
However, the current rising interest rate regime will continue to increase cost of capital. Other macro headwinds like supply-chain constraints are hurting the margins of the industry players. These headwinds are likely to continue in 2023, subduing earnings growth. Industry participants like West Pharmaceutical Services WST, Align Technology ALGN, The Cooper Companies COO, Dentsply Sirona XRAY and Patterson Companies PDCO have shown encouraging trends amid uncertain conditions and are likely to gain from the existing market opportunities.
Industry Description
The global dental 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. The market 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 and CDC. Backed by the rebound experienced by companies in this space, patient volume continues to see an encouraging increase despite the COVID-19 uncertainty.
Major Trends Shaping the Future of the Medical Dental Supplies Industry
Increasing Burden of Oral Diseases and 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 dental equipment market.
Demand for Aesthetic and Cosmetic Dentistry: The demand for esthetic and cosmetic dentistry is driving the dental equipment market in the United States. Influenced by Internet strategies, current trends and media coverage, people are showing interest in dental esthetics. Cosmetic dentistry, which originated in the United States, has been the driving force behind many advancements in the field. Patients in the country are increasingly seeking procedures that can improve their smile, as well as restore dental function. This trend is fueling the growth of the dental equipment market in the United States.
Technological Advancements: New technologies such as digital imaging, laser dentistry and CAD/CAM (computer-aided design and computer-aided manufacturing) systems are transforming the way dental procedures are performed these days. These technologies offer more precise and efficient treatments, resulting in better outcomes for patients. Additionally, innovations in materials science have resulted in the development of new materials that are more durable, biocompatible and esthetically pleasing, expanding the range of supplies available to dental practitioners.
Zacks Industry Rank
The Zacks Medical Dental Supplies industry falls within the broader Zacks Medical sector.
It carries a Zacks Industry Rank #20, which places it in the top 8% 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 15% against the Zacks Medical sector’s decline of 3.5%. The S&P 500 has gained 18.5% 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 19X compared with the S&P 500’s 19.92X and the sector’s 22.22X.
Over the last five years, the industry has traded as high as 20.1X and as low as 13.31X, with the median being 17.72X, as the charts below show.
Price-to-Earnings Forward Twelve Months (F12M)
Price-to-Earnings Forward Twelve Months (F12M)
5 Promising Dental Supply Stocks
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 NovaPure, Envision and Westar products fueled top-line growth in the first quarter of 2023. The Biologics and Generics market units demonstrated robust organic growth during the quarter. Moreover, the Pharma market unit also contributed to the company’s overall organic growth.
West Pharmaceutical Servicesprojects adjusted earnings per share of $7.50-$7.65 for 2023.
The Zacks Consensus Estimate for fiscal 2023 revenues indicates growth of 3.1% from the year-ago reported figure, while the same for earnings implies a decline of 10.4%. WST has a trailing four-quarter average earnings surprise of 13.61%. It sports a Zacks Rank #1 (Strong Buy) at present.
Price and Consensus: WST
Patterson Companies is a value-added specialty distributor of dental and animal health products in the United States and Canada. The company’s dental segment provides consumable products (including infection control, restorative materials, and instruments); basic and advanced technology and dental equipment; and innovative practice optimization solutions, including practice management software, e-commerce, revenue cycle management, patient engagement solutions, and clinical and patient education. Apart from dental products, XRAY also has animal health products in its commercial portfolio. Both segments have delivered promising results so far in 2023.
Patterson Companies’ top line increased 5% in the last reported quarter, but missed the Zacks Consensus Estimate by 3.6%. Strong revenue growth across all its segments and geographies buoys optimism. The unfavorable currency movement is likely to subside in the second half of 2023, boosting top-line growth rate. The company expects adjusted earnings growth of 1-5%.
For this St. Paul, MN-headquartered company, the Zacks Consensus Estimate for fiscal 2023 earnings and revenues implies growth of 3.3% and 3.8%, respectively. Currently, the company sports a Zacks Rank #1.
Price and Consensus: PDCO
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 declined 3.1% in the last reported quarter but beat the Zacks Consensus Estimate by 3.8%. Revenues from the Clear Aligner segment were unfavorably impacted by lower volumes and lower average selling price. Meanwhile, lower scanner volumes hurt Imaging Systems & CAD/CAM Services revenues. This was partially offset by higher service revenues from the larger installed base of scanners sold and increased non-system revenues. The company expects total revenue growth of 1-3% for the second quarter of fiscal 2024 and adjusted earnings growth of 2-4%. It is also likely to report a 2023 adjusted operating margin of slightly higher than 20%.
The Zacks Consensus Estimate for fiscal 2023 earnings and revenues indicates year-over-year growth of 7.1% and 4.2%, respectively. Currently, the company holds a Zacks Rank of 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Price and Consensus: ALGN
The Cooper Companies is a specialty medical device company operating on a global basis. It operates under two business segments — CooperVision and CooperSurgical. While CooperVision manufactures and sells a wide range of contact lenses, CooperSurgical deals in a variety of medical devices and surgical instruments. Per the company, myopia management continues to see strong momentum during the fourth quarter. COO is progressing well through inorganic expansion. It has expanded its products and services portfolio through multiple acquisitions over the last few years.
The Cooper Companies’ top line gained 6% in the last reported quarter. It also beat the Zacks Consensus Estimate by 1.7%. Strong revenue growth across all its segments and geographies was partially offset by an unfavorable currency movement. The company expects total revenue growth of 7-9% and adjusted earnings growth of 2-4% for fiscal 2023.
For this Pleasanton, CA-based company, the Zacks Consensus Estimate for fiscal 2023 earnings and revenues indicates growth of 3% and 7.3%, respectively. Currently, the company carries a Zacks Rank #2.
Price and Consensus: COO
Dentsply Sirona is a global leader in the design, development, manufacture and marketing of dental consumables, dental laboratory products, dental specialty products and consumable medical device products. In addition, it provides dental technology products, including dental implants and related scanning equipment, treatment software, and orthodontic appliances for dental practitioners and specialist. It also supplies dental equipment, such as treatment centers, imaging equipment, and computer aided design and machining systems for dental practitioners.
Strong growth in Consumables segment is driving Dentsply Sirona’s top-line growth in 2023. The company’s revenues gained 5.1% organically in the last reported quarter. It also beat the Zacks Consensus Estimate by 5.1%. Robust result in the last reported quarter led Dentsply Sirona to raise its earnings and revenue guidance for 2023. While adjusted earnings are expected to decline 4-11.5%, revenues are expected to be flat to up 2% organically.
For this York, PA-based company, the Zacks Consensus Estimate for fiscal 2023 earnings and revenues indicates a decline of 8.1% and an increase of 0.4%, respectively. Currently, the company carries a Zacks Rank #2.
Price and Consensus: XRAY
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West Pharmaceutical Services, Inc. (WST) : Free Stock Analysis Report
Align Technology, Inc. (ALGN) : Free Stock Analysis Report
DENTSPLY SIRONA Inc. (XRAY) : Free Stock Analysis Report
Patterson Companies, Inc. (PDCO) : Free Stock Analysis Report
The Cooper Companies, Inc. (COO) : Free Stock Analysis Report
