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Henry Schein, P&G Sign Distribution Deal

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Recently, Henry Schein Inc.‘s (HSIC) distribution business received a boost on the back of a distribution deal inked with leading consumer goods company – The Procter & Gamble Company (PG). Per the agreement, Henry Schein Animal Health – the U.S. animal health division of Henry Schein – will act as the exclusive distributor of P&G's Iams therapeutic diet formulas of dog and cat food solutions in the contiguous U.S. However, the financial terms of this agreement has not been disclosed.

Henry Schein continues to grain traction in its distribution business which spans across the globe with 67 distribution centers. Apart from North America and Europe, it has footprints in Australia and New Zealand, as well as emerging nations like China. The company is currently trying to enter Poland, the sixth largest economy in the European Union. Earlier this month, Henry Schein completed the acquisition of four distributors serving dentists and dental laboratories in France, the Netherlands and Belgium from Arseus NV.

Last November, the company had announced its plan to purchase an 80% stake in privately-held Medivet S.A., a leading distributor of animal health products and services in Poland.  Prior to that in Oct 2013, the company had announced its expansion into South Africa with the acquisition of a minority ownership position in The Dental Warehouse, a leading distributor of dental consumable merchandise in the country.

Henry Schein is well positioned to gain from its extensive global foothold and diverse channel mix. Favorable market dynamics is a major growth catalyst going forward. We believe high-growth avenues like the animal health market should improve Henry Schein’s growth profile. We are encouraged to find that in spite of the austerity measures in Europe, Henry Schein continues to garner market share in the Dental segment. Moreover, the recent strategic acquisitions and partnerships along with plans to expand global footprint are expected to act as major growth catalysts.

However, the European economy and macroeconomic uncertainty remain as major overhangs. Further, intense competition and currency headwinds warrant caution. Moreover, as group purchasing organizations (:GPO) gain prominence, pricing pressure is inevitable in the near term.

The stock currently carries a Zacks Rank #3 (Hold). Some of the better-placed medical stocks worth considering are Align Technology Inc. (ALGN), Becton, Dickinson and Company (BDX) and Cardinal Health, Inc. (CAH). All these stocks carry a Zacks Rank #2 (Buy).

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