Henry Schein Inc: A Modestly Undervalued Gem in the Healthcare Sector
Henry Schein Inc (NASDAQ:HSIC) experienced a daily loss of -2.68%, and a 3-month loss of -4.8%. Despite this, the company reported an Earnings Per Share (EPS) (EPS) of 3.52, raising the question: Is the stock modestly undervalued? This article delves into the valuation analysis of Henry Schein Inc, providing a detailed examination of its financial health and growth prospects.
Company Overview
Henry Schein Inc is a solutions company for healthcare professionals powered by a network of people and technology. The company provides healthcare products and services primarily to office-based dental and medical practitioners, as well as alternate sites of care. The majority of its revenue is derived from the health care distribution segment. The current stock price is $76, while the estimated fair value (GF Value) is $87.58, suggesting that the stock may be modestly undervalued.
Understanding the GF Value
The GF Value represents the intrinsic value of a stock, calculated based on historical multiples, GuruFocus adjustment factor, and future business performance estimates. This value serves as a benchmark for the fair trading value of the stock. If the stock price is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. Conversely, if it is significantly below the GF Value Line, its future return will likely be higher.
Considering these factors, Henry Schein (NASDAQ:HSIC) appears to be modestly undervalued. Given this undervaluation, the long-term return of its stock is likely to be higher than its business growth.
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Financial Strength
Investing in companies with low financial strength could result in permanent capital loss. Henry Schein has a cash-to-debt ratio of 0.08, ranking worse than 87.64% of companies in the Medical Distribution industry. Given this, GuruFocus ranks Henry Schein's financial strength as 6 out of 10, suggesting a fair balance sheet.
Profitability and Growth
Consistently profitable companies offer less risk for investors. Henry Schein has been profitable 10 over the past 10 years, with an operating margin of 6.7%, ranking better than 75% of companies in the Medical Distribution industry. Overall, the profitability of Henry Schein is ranked 9 out of 10, indicating strong profitability.
However, the company's growth ranks worse than 62.86% of companies in the Medical Distribution industry, with a 3-year average annual revenue growth of 11.1% and a 3-year average EBITDA growth rate of 4.9%.
ROIC vs WACC
Comparing a company's return on invested capital (ROIC) to its weighted cost of capital (WACC) provides another measure of profitability. If the ROIC is higher than the WACC, it indicates that the company is creating value for shareholders. Over the past 12 months, Henry Schein's ROIC was 9.96, while its WACC came in at 7.53.
Conclusion
In conclusion, the stock of Henry Schein (NASDAQ:HSIC) shows every sign of being modestly undervalued. The company's financial condition is fair, and its profitability is strong. To learn more about Henry Schein stock, you can check out its 30-Year Financials here.
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This article first appeared on GuruFocus.
