Henry Schein, Inc. HSIC has been gaining from favorable dental business trends. Further, the better-than-expected results in the fourth quarter of 2021 buoy optimism. Yet, rising operating expenses and stiff competition raise apprehension.
Over the past year, this Zacks Rank #1 (Strong Buy) stock has gained 35.3% compared with 10.3% growth of the industry and 12.4% rise of the S&P 500 composite.
The renowned global distributor of health care products and services has a market capitalization of $11.98 billion. Its fourth-quarter 2021 earnings surpassed the Zacks Consensus Estimate by 18.9%.
The company’s projected long-term earnings growth of 11.8% compares with the industry’s growth projection of 10.7%.
Let’s delve deeper.
Key Growth Drivers
Impressive Q4 Results: Henry Schein exited the fourth quarter of 2021 on a bullish note with better-than-expected results. The company saw robust performances by all three of its operating businesses. The company’s international performance was also impressive. In the International Dental business, the company registered strong sales growth in the U.K., driven by continued recovery. Growth within Henry Schein One continues to be driven primarily by a recovery in patient traffic in dental offices. Further, expansion of the gross margins bodes well.
Dental Business Trends Favorable for the Long Term: Henry Schein’s strategy to expand digital dentistry globally is encouraging. Per a report by MarketWatch, the global dental services market size was valued at $418.3 million in 2020 and is projected to reach $728.6 million by 2027, at a CAGR of 7.8%.
During the fourth quarter, Henry Schein’s global dental sales increased 9.4% compared with the same period last year. Henry Schein noted that growth was strong in each of the dental specialty categories, including implants, oral surgery, endodontics, and orthodontics, in the quarter.
Expansion Through Acquisitions & Partnerships: Henry Schein’s revenue growth has been consistently supported by niche acquisitions and partnerships. Its robust acquisition strategy helps it pursue targets that provide access to additional product lines.
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In December 2021, Henry Schein signed a cooperative contract with OMNIA Partners -- one of the nation’s largest purchasing organizations for public and private sector procurement,that will expand access to point-of-care diagnostic testing, personal protective equipment (PPE), and medical products and supplies in academic and public health settings.
Mounting Expenses: During the fourth quarter, Global Medical revenues fell 3.2% year over year, including a decrease of 7.1% in internal local currencies and 3.9% growth from acquisitions. Moreover, selling, general and administrative expenses rose 14.9% during the reported quarter. The escalating costs are building pressure on the bottom line.
Tough Competition: The U.S. healthcare products and service distribution industry are highly competitive and consist principally of national, regional and local distributors. In the North American dental products market, the company faces stiff competition from Patterson Dental business of Patterson Companies Inc. and Benco Dental Supply.
Henry Schein has been witnessing a positive estimate revision trend for 2022. Over the past 90 days, the Zacks Consensus Estimate for its 2021 earnings has moved 4.5% north to $4.86.
The Zacks Consensus Estimate for its 2022 revenues is pegged at $13.20 billion, suggesting a 6.4% rise year over year.
Other Key Picks
Few other top-ranked stocks in the broader medical space are McKesson Corporation MCK, AMN Healthcare Services, Inc. AMN and Bio-Rad Laboratories, Inc. BIO.
McKesson, carrying a Zacks Rank #2 (Buy), reported third-quarter fiscal 2022 adjusted earnings per share (EPS) of $6.15, which beat the Zacks Consensus Estimate of $5.38 by 14.3%. You can see the complete list of today’s Zacks #1 Rank stocks here.
McKesson has a long-term earnings growth rate of 11.8%. MCK has gained 35.3% compared with the industry’s 10.3% growth in the past year.
AMN Healthcare, carrying a Zacks Rank #1, has a long-term earnings growth rate of 16.2%. The company surpassed earnings estimates in the trailing four quarters, delivering a surprise of 19.5%, on average.
AMN Healthcare has outperformed its industry over the past year. AMN has gained 42.8% versus the 55.7% industry decline.
Bio-Rad reported fourth-quarter 2021 adjusted EPS of $3.21, which surpassed the Zacks Consensus Estimate by 11.9%. It currently has a Zacks Rank #2.
Bio-Rad has an earnings yield of 2.3%, which compares favorably with the industry’s negative yield. BIO surpassed earnings estimates in the trailing four quarters, the average surprise being 66.9%.
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