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 strength of its dental business. The company’s revenue growth in North America, led by customers’ upgradation from the Easy Dental product to cloud-based solutions — Dentrix and Dentrix Ascend — looks impressive. However, weak solvency and stiff competition pose challenges for the company.
In the past six months, this Zacks Rank #3 (Hold) stock has increased 0.3% compared with the 14.9% growth of the industry and the 13% rise of the S&P 500 composite.
The leading distributor of healthcare products and services has a market capitalization of $10.18 billion. The company has an earnings yield of 6.8% for the next five years.
Let’s delve deeper.
Tailwinds
Dental Business Trends Favorable for the Long Term: Henry Schein’s strategy to expand digital dentistry globally is encouraging. The company is busy promoting digital workflows for general dentistry as well as dental specialties. The company currently focuses on offering a diversified portfolio, value-added services and a favorable end market.
The underlying fundamentals in the U.S. dental market remain strong and demand for dental services and customer confidence continue to improve, evidenced by the ongoing investments customers are making in their practices.
Henry Schein One Holds Potential: Henry Schein seems upbeat about its dental technology joint venture (JV) Henry Schein One. The dental software business has been progressing well despite a challenging business environment.
Global growth in Henry Schein One is driven by ongoing migration to its cloud-based practice management software solutions, Dentrix Ascend and Dentally and revenue cycle management business growth resulting from increased patient traffic driving a higher volume of e-claims.
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During the second-quarter earnings call, Henry Schein noted that its customer base for Dentrix and Dentrix Ascend increased nearly 40% from the prior year.
Downsides
Weak Solvency With Slight Leverage: Henry Schein exited the second quarter of 2023 with cash and cash equivalents of $137 million compared with $117 million as of Dec 31, 2022. The company's long-term debt at the end of the second quarter was $1.13 billion compared with $1.04 billion at the end of 2022.
The short-term-payable debt at the end of the second quarter was $391 million (up from $291 million at the end of the first quarter of 2023), higher than the present level of cash in hand. This is not good news for the company as it is not holding sufficient cash for short-term debt repayment.
Tough Competition: The U.S. healthcare products and service distribution industry is highly competitive and consists 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.
Estimate Trend
The Zacks Consensus Estimate for HSIC’s 2023 earnings per share (EPS) has moved 0.2% to $5.27 in the past 90 days.
The Zacks Consensus Estimate for the company’s 2023 revenues is pegged at $12.84 billion. This suggests a 1.5% rise from the year-ago reported number.
Key Picks
Some better-ranked stocks in the broader medical space are Haemonetics HAE, Quanterix QTRX and SiBone SIBN, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Haemonetics’ stock has risen 19.9% in the past year. Earnings estimates for Haemonetics have increased from $3.56 to $3.74 in 2023 and $3.96 to $4.07 in 2024 in the past 30 days.
HAE’s earnings beat estimates in each of the trailing four quarters, delivering an average surprise of 19.39%. In the last reported quarter, it posted an earnings surprise of 38.16%.
Estimates for Quanterix’s 2023 loss per share have narrowed from $1.19 to 97 cents in the past 30 days. Shares of the company have increased 167.5% in the past year against the industry’s decline of 1.7%.
QTRX’s earnings beat estimates in each of the trailing four quarters, delivering an average surprise of 30.39%. In the last reported quarter, it posted an earnings surprise of 55.56%.
Estimates for SiBone’s2023 loss have narrowed from $1.42 to $1.27 per share in the past 30 days. Shares of the company have increased 31% in the past year compared with the industry’s rise of 1.9%.
SIBN’s earnings beat estimates in all the trailing four quarters, the average surprise being 20.37%. In the last reported quarter, SiBone delivered an earnings surprise of 26.83%.
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