Here's Why You Should Retain Henry Schein (HSIC) Stock for Now
Henry Schein, Inc. HSIC is well-poised for growth in the coming quarters, backed by the benefits of strategic partnerships. The company’s second-quarter 2023 results reflected the remarkable performance of North American dental businesses due to strong equipment and steady general merchandise sales. Ongoing strength in sales of technology and value-added services, implants, biomaterials and endodontic products is also encouraging.
Meanwhile, weak solvency and macroeconomic disadvantages do not bode well for the company.
In the past year, this Zacks Rank #3 (Hold) stock has increased 4.4% compared with the 14.3% growth of the industry and the 13.7% rise of the S&P 500 composite.
The leading distributor of healthcare products and services has a market capitalization of $9.57 billion. The company has an earnings yield of 7.19% compared with the industry’s 4.76%. Henry Schein surpassed estimates in two of the trailing four quarters, broke even in one quarter and missed in one, delivering an average earnings surprise of 0.82%.
Let’s delve deeper.
Tailwinds
Expansion Through Acquisitions & Partnerships: Henry Schein’s revenue growth has been consistently supported by niche acquisitions and partnerships. In August 2023, the company signed an agreement to acquire a majority ownership position in Shield Healthcare, Inc., which will advance Henry Schein Medical’s continuum-of-care delivery model.
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Earlier in April, Henry Schein completed its majority share acquisition of Biotech Dental for a total consideration of $423 million. The integration of Biotech Dental’s software with Henry Schein One’s industry-leading practice management software solutions will help customers streamline their clinical and administrative workflow for the ultimate benefit of patients.
Henry Schein also signed a definitive agreement to acquire S.I.N. Implant System, one of Brazil’s leading manufacturers of dental implants. The announcement marks HENRY SCHEIN’s planned entry into Brazil’s large implant market.
Trends in the Dental Business Appear Favorable for the Long Term: Henry Schein’s strategy to expand digital dentistry globally is encouraging. The company is witnessing the growing demand for its implant systems and endodontic products and integrated software and services solutions, which are generating strong growth by delivering greater efficiency and a better experience to its customers.
Within Henry Schein’s Global Dental Specialty business, implant sales growth continued to be driven by the premium Camlog product line in Germany, Austria and Switzerland. North America reported an increase in dental specialty practices being acquired by larger Dental Service Organizations.
Henry Schein One Holds Potential: Global growth in the company’s dental software business — Henry Schein One — is driven by the ongoing migration to its cloud-based practice management software solutions, Dentrix Ascend and Dentally, and by revenue cycle management business growth resulting from increased patient traffic driving a higher volume of e-claims.
Recently, HSIC announced the full integration of AI solutions into Dentrix Ascend — the company’s cloud-based practice management software. In addition, Henry Schein now offers a broad range of value-added services through its businesses such as eAssist, which provides revenue cycle management, and Unitas provides advice on PPO agreements with insurance providers along with other services, including financial services, practice transitions, staffing services, education and remote patient monitoring for office-based dental and medical practitioners.
Downsides
Weak Solvency: Henry Schein exited the second quarter of 2023 with cash and cash equivalents of $137 million against a short-term payable debt of $391 million, which is discouraging. The long-term debt of the company at the end of the second quarter was $1.13 billion compared with $1.04 billion at the end of 2022.
Economic Problems: The impacts of macroeconomic factors such as exchange rate fluctuations, inflation and recession are adversely affecting the company’s results of operations. Henry Schein’s total revenues were negatively impacted by 0.4% due to unfavorable foreign currency movements. The company’s SG&A expenses rose 4% year over year.
Estimate Trend
The Zacks Consensus Estimate for HSIC’s 2023 earnings per share (EPS) has remained constant at $5.27 in the past 30 days.
The Zacks Consensus Estimate for the company’s 2023 revenues is pegged at $12.84 billion. This suggests a 1.54% rise from the year-ago reported number.
Key Picks
Some better-ranked stocks in the broader medical space are Haemonetics HAE, Align Technology ALGN and Quanterix QTRX.
Haemonetics has an estimated earnings growth rate of 26.1% in fiscal 2024 compared with the industry’s 18.7%. HAE’s earnings surpassed the Zacks Consensus Estimate in each of the trailing four quarters, the average surprise being 19.39%. Its shares have rallied 13.4% against the industry’s 5.5% fall in the past year.
HAE carries a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Align Technology, carrying a Zacks Rank #2 at present, has a long-term estimated earnings growth rate of 17.5% compared with the industry’s 12.8%. Shares of the company have rallied 27% compared with the industry’s 13.8% growth over the past year.
ALGN’s earnings surpassed estimates in three of the trailing four quarters and missed in one quarter. In the last reported quarter, it delivered an average earnings surprise of 9.9%.
Quanterix, carrying a Zacks Rank #2 at present, has an estimated earnings growth rate of 62.8% for the current year compared with the industry’s 15.2%. Shares of QTRX have surged 141.5% against the industry’s 5.6% decline over the past year.
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