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Henry Schein Pinned at Neutral

Zacks Equity Research

On Sep 16, 2013, we maintained our long-term Neutral recommendation on Henry Schein Inc. (HSIC) following solid second-quarter 2013 results. This leading global distributor of health care products and services carries a Zacks Rank #3 (Hold).

Why Still Neutral?

Henry Schein continues to record healthy quarterly performance. In the second quarter, adjusted EPS rose 10.8% year over year to $1.23, beating the Zacks Consensus Estimate by a penny. Revenues increased 8.6% to $2.39 billion in the quarter, marginally ahead of the Zacks Consensus Estimate of $2.38 billion.

The company continues to gain from its broad footprint in the fast growing animal health market. The growth in its core dental business also bolstered confidence. Henry Schein is well positioned to further gain from its extensive global foothold and diverse channel mix. It also stands to gain from attractive market dynamics and favorable demographic trends. We believe that Henry Schein’s aggressive strategy of tuck-in acquisitions should boost its growth profile.

Given the current growth trend, the company raised the lower end of the guidance range for 2013. At present, Henry Schein envisages adjusted EPS in the range of $4.86−$4.91, representing growth of 9%−11% year over year, compared with prior guidance of $4.81−$4.91.

On the tepid side, the rising prominence of group purchasing organizations (GPOs) has increased pricing pressure in the industry. This might be a drag on Henry Schein’s business in the future. The contagion of global economic problems continues to remain an overhang on the healthcare industry. While the dental business continued to face pressure in selective international markets, the animal health market growth rate across Europe remained sluggish.

In addition, currency headwinds continue to downplay quarterly results as seen in the 0.1% negative impact on top-line growth from unfavorable currency movements in the reported quarter. The company also faces tough competition in each business line.

Stocks that Warrant a Look

While we remain on the sidelines for Henry Schein, we are positive about The Cooper Companies Inc. (COO), Align Technology Inc. (ALGN) and MWI Veterinary Supply, Inc. (MWIV) doing well. These stocks carry Zacks Rank #2 (Buy).

Read the Full Research Report on ALGNRead the Full Research Report on HSICRead the Full Research Report on MWIVRead the Full Research Report on COOZacks Investment Research