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Here's Why You Should Retain Henry Schein (HSIC) Stock For Now

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Zacks Equity Research
·4 min read
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Henry Schein, Inc. HSIC has been gaining on robust sales of personal protective equipment (“PPE”) and COVID-19-related products sales. Its international performance has also been impressive. Its better-than-expected revenues in the fourth quarter of 2020 buoy optimism. However, impact of Group Purchasing Organizations (GPOs) and a stiff competitive landscape are concerning.

Over the past year, the Zacks Rank #3 (Hold) stock has gained 38% compared with 46.5% growth of the industry and 55.6% rise of the S&P 500 composite.

The renowned global distributor of health care products and services has a market capitalization of $9.94 billion. The company expects to maintain strong product performance. It surpassed estimates in all the trailing four quarters, the average surprise being 44%.

Let’s delve deeper.

Strategic Deals: Henry Schein’s partnership deals buoy optimism. In January 2021, Henry Schein’s U.S. dental laboratory business, Zahn Dental, entered into a distribution agreement with Spain-based Terrats Medical, the manufacturer of the DESS Dental Smart Solutions system. The same month, Henry Schein announced the acquisition of a majority ownership position in Prism Medical Products, which will enable Henry Schein’s U.S. medical division to enter the multibillion-dollar market for home medical equipment and supplies.

Also in January 2021, Henry Schein completed its joint venture (“JV”) with Casa Schmidt, a comprehensive provider of dental solutions for dental professionals in Spain and Portugal. In December 2020, Henry Schein Medical entered into a distribution agreement with Yosi Health.

Henry Schein One Holds Potential: We are optimistic about the company’s dental technology JV — Henry Schein One. The company, during the fourth quarter of 2020, launched various product enhancements for Henry Schein One Solutions. This included directory online booking, which is a self-scheduling solution for the WebMD directory, allowing prospective patients to book appointments online through the WebMD directory.

Other notable offerings from the Henry Schein One portfolio include Patient Engagement Live, Patient Engage mobile app, and Dentrix Ascend Pay and Dentrix Enterprise Pay.

Strong Q4 Results: We are upbeat about Henry Schein’s better-than-expected results in the fourth quarter of 2020. All three of Henry Schein’s operating arms performed well. International performance was also impressive. Strong demand for PPE and COVID-19-related products, and a strong rebound in sales, are encouraging. Strength in Dentrix Ascend cloud-based software and North America financial services sales were also impressive.

Downsides

Impact of GPOs: The healthcare industry has been facing numerous headwinds, such as measures to curb capital expenditure, volume headwind, pricing pressure and procedure deferrals, among others. Given this, some large integrated healthcare providers and GPOs have gained considerable purchasing power. Moreover, the ongoing economic climate bolstered the bargaining power of GPOs. The GPOs have also increased pricing pressure in the industry. This might be a drag on Henry Schein’s business in the future.

Stiff Competition: The U.S. healthcare products and service distribution industry is highly competitive and consists of national, regional and local distributors. The competition in the animal health market is also fierce, with companies like IDEXX Laboratories, Inc. IDXX gaining traction. Moreover, the presence of specialized players in the electronic medical records market puts Henry Schein in a tight spot. Moreover, competition in overseas market is also tough. The tussle for market share might be a drag on results.

Estimate Trend

Henry Schein has been witnessing a positive estimate revision trend for 2021. Over the past 90 days, the Zacks Consensus Estimate for its earnings has moved 1.4% north to $3.68.

The Zacks Consensus Estimate for first-quarter 2021 revenues is pegged at $2.84 billion, suggesting 16.7% rise from the year-ago reported number.

Key Picks

Some other better-ranked stocks from the broader medical space are Hologic, Inc. HOLX and Align Technology, Inc. ALGN.

Hologic’s long-term earnings growth rate is estimated at 15.4%. The company presently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Align Technology’s long-term earnings growth rate is estimated at 19.8%. It currently sports a Zacks Rank #1.

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