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Henry Schein (HSIC) Hits New 52-Week High: What's Driving It?

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Shares of Henry Schein, Inc. HSIC reached a new 52-week high of $82.71 on May 7, before closing the session marginally lower at $80.61. The stock has rallied 0.9% since its first-quarter 2021 earnings announcement on May 4.

The company is witnessing an upward trend in its stock price, prompted by contributions from elevated consumer demand. Potential in the company’s Henry Schein One portfolio, along with a series of strategic deals, boosted the market sentiment. However, a stiff competitive landscape and impact of Group Purchasing Organizations (GPOs) are concerning for the company.

Let's delve deeper.

Q1 Performance

Henry Schein exited the first quarter of 2021 with better-than-expected results despite adversities posed by the coronavirus outbreak. The company saw robust performances by all three of its operating businesses. The company’s international performance was also impressive. Henry Schein witnessed strong demand for personal protective equipment and COVID-19-related products, along with a strong rebound in sales. Expansion of the operating margin bodes well for the stock.

Other Growth Drivers

Strategic Deals: Henry Schein’s recent deals instill investors’ confidence. The company, in March, announced a new investment in Stradis Medical, which is expected to strengthen Henry Schein’s foothold in the ambulatory surgery market.

In January, Henry Schein’s U.S. dental laboratory business, Zahn Dental, entered into a distribution agreement with Spain-based Terrats Medical. The same month, Henry Schein announced the acquisition of a majority ownership in Prism Medical Products, which will enable Henry Schein’s U.S. medical division to enter the multibillion-dollar market for home medical equipment and supplies. Also in January, Henry Schein completed its joint venture (“JV”) with Casa Schmidt — a comprehensive provider of dental solutions for dental professionals in Spain and Portugal.

Henry Schein One Holds Potential: Henry Schein’s dental technology JV Henry Schein One’s contributions to the company’s Technology and Value-Added Service business boost market sentiment. The company, during its first-quarter 2021, introduced new products, enhancements (including new Dentrix imaging software), tools for processing insurance remittances and calculating payment adjustments, and an online booking feature for Sesame (primarily an orthodontic business software).

Other notable launches made by Henry Schein in the last-reported quarter include various product enhancements for Henry Schein One Solutions, like directory online booking (a self-scheduling solution for the WebMD directory).

Downsides

Impact of GPOs: The healthcare industry has been facing numerous headwinds, such as measures to curb capital expenditure, volume headwind, pricing pressure and procedure deferrals, among others. Given this, some large integrated healthcare providers and GPOs have gained considerable purchasing power. Moreover, the ongoing economic climate has bolstered the bargaining power of GPOs. The GPOs have also increased pricing pressure in the industry. This might be a drag on Henry Schein’s business in the future.

Stiff Competition: The U.S. healthcare products and service distribution industry is highly competitive and consists of national, regional and local distributors. Competition in the animal health market is also fierce, with companies like IDEXX Laboratories, Inc. IDXX gaining traction. Moreover, the presence of specialized players in the electronic medical records market puts Henry Schein in a tight spot. Competition in the overseas market is also tough. The tussle for market share might be a drag on results.

Zacks Rank & Other Key Picks

Currently, Henry Schein carries a Zacks Rank #2 (Buy).

A couple of other top-ranked stocks from the broader medical space are Amedisys, Inc. AMED and Boston Scientific Corporation BSX.

Amedisys’ long-term earnings growth rate is estimated at 12%. The company presently carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Boston Scientific’s long-term earnings growth rate is estimated at 9.3%. It currently carries a Zacks Rank #2.

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