The Zacks Medical Info Systems industry comprises companies, which develop and market healthcare information systems. They offer software and hardware solutions to healthcare providers with secure access to real-time clinical, administrative and financial data in a time-efficient manner. Over the past few years, this digital health sector has evolved greatly to meet the changing needs of healthcare providers.
Focus on patient satisfaction and security of patient data, and increasing administrative costs have increased the need for big data, 3D printing, blockchain and AI. These technologies are currently shaping the MedTech space.
The industry players are raking in billions from the sale of proprietary software and related hardware, professional services and IT outsourcing services. Recurring service contracts for software maintenance and certain transaction processing services also contribute to revenues. A major player in this industry is Cerner, a healthcare information technology (HCIT) solutions provider.
Let’s take a look at the four major industry themes:
- Amid the coronavirus-led worldwide economic crisis, while most of the healthcare segments are witnessing a bloodbath, medical information systems companies are assessing the impact on their business more positively than the rest. According to the players, this crisis significantly highlights the need for healthcare organizations to invest in data and analytics. Going by a Dataquest report, 34% of the digital health companies expect the pandemic to have a positive impact on their business and 53% of the industry players believe that this will bring about a significant improvement in patient acceptance of digital solutions. With contactless services being the buzzword now, this sector is witnessing growing demand for telemedicine-focused digital medical services. Other sector participants that will benefit the most apart from telehealth companies are remote monitoring and self-testing solutions providers.
- Among other long-term trends, EHRs, electronic medical records (“EMR”), predictive analytics and real-time alerting have been gaining prominence in the U.S. MedTech space. This has led to the emergence of Internet of Medical Things (IoMT), which has enabled the use of a number of wearables, including ECG and EKG monitors, apart from other common medical measurement devices to determine temperature, glucose level, and blood pressure readings. Evolution in telemedicine is another mega trend worth mentioning here. Notably, telemedicine is proving to be increasingly transformative as it makes it easier for patients to gain access to specialists.
- Another new trend is blockchain technology, a new method of storing the same amount of digital information in such a way that it takes up less space. Notably, blockchain systems help EMRs connect and share information without limitations. This keeps patient records more secure, while simultaneously making it easier for providers to share information on patient care. In fact, leading healthcare companies like Humana (HUM), MultiPlan, Quest Diagnostics (DGX) and UnitedHealth Group’s (UNH) Optum and UnitedHealthcare formed an alliance to launch Synaptic Health Alliance pilot project on the blockchain technology. Aetna, a CVS Health business, and Ascension have also joined this program.
- As healthcare becomes more wired and interconnected, cybersecurity is the primary concern of hospitals. Notably, healthcare facilities have been the target of many high-profile attacks by hackers, costing millions and causing major disruption in patient care systems. In fact, security flaws are often found in electronic medical device operating systems or other devices like ECG machines, imaging scanners, infusion pumps and telemetry systems.
Zacks Industry Rank Indicates Bright Prospects
The Zacks Medical Info Systems industry falls within the broader Zacks Medical sector. It carries a Zacks Industry Rank #36, which places it in the top 14% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates bright near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.
We will present a few stocks that have the potential to outperform the market based on a strong earnings outlook. But it’s worth taking a look at the industry’s shareholder returns and current valuation first.
Industry Outperforms S&P 500, Lags Sector
The industry has outperformed the Zacks S&P 500 composite over the past year but lagged sector.
The industry has gained 3.6%, comparing favorably with the S&P 500’s 3.1% rise. However, it fell short of the Zacks Medical sector’s rise of 4.4%.
One-Year Price Performance
Industry’s Current Valuation
On the basis of forward 12-month price-to-earnings (P/E), which is commonly used for valuing medical stocks, the industry is currently trading at 83.76X compared with the S&P 500’s 21.13X and the sector’s 18.01X.
Over the last five years, the sector has traded as high as 22.71X, as low as 15.81X, and at the median of 18.81X, as the charts below show.
Price-to-Earnings Forward Twelve Months (F12M)
Price-to-Earnings Forward Twelve Months (F12M)
Technology revolution will continue to drive demand for IT service solutions in healthcare. Moreover, with increasing competition and rising healthcare costs, it will become absolutely necessary for healthcare organizations to implement IoMT, telemedicine and blockchain technology. Also, these organizations are increasingly required to implement cybersecurity rules for maintaining confidentiality of patients’ health information. Additionally, the arrival of VR and AR solutions has led to significant advances in healthcare technologies. From educating new students to planning procedures, the field of AR and VR in healthcare offers considerable promise.
Further, amid the coronavirus-led economic crisis, worldwide sales and supply disruption has put many smaller players’ businesses at stake right now. Many of these are currently unable to properly access credit or equity funding. If the situation persists, it can lead to a severe survival threat going forward.
Below are three stocks within the Medical Info Systems industry that have been witnessing positive earnings estimate revisions and carry a Zacks Rank #1 (Strong Buy) or #2 (Buy), at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
Health Catalyst Inc (HCAT): The company provides data and analytics technology and services to healthcare organizations. Health Catalyst is currently working to develop a series of COVID-19 specific technology and services solutions that will be based on its DOS platform and leverage several of its analytics applications.
The company currently sports a Zacks Rank of 1. The Zacks Consensus Estimate for fiscal 2020 earnings indicates year-over-year increase of 6.5%. The company delivered average positive earnings surprise of 30.9% in the trailing four quarters.
Price and Consensus: HCAT
1Life Healthcare Inc (ONEM): This is a membership-based primary care platform offering seamless digital health and inviting in-office care, convenient to where people work, shop, live and click. Amid the pandemic situation, through the last month of the first quarter, the company took several measures for healthcare support that include bringing its modernized, membership-based primary care model to facilitate access and coordinated care across primary care and specialty care services. Further, the company expanded its virtual care offerings and COVID-19 testing services nationwide.
The company holds a Zacks Rank of 2, at present. The Zacks Consensus Estimate for 2020 earnings indicates year-over-year growth of 74.3%. The same for revenues indicates expected year-over-year growth of 10.1%.
Price and Consensus: ONEM
Cerner Corporation (CERN): Missouri-based Cerner offers software and hardware solutions that give healthcare providers secure access to clinical, administrative and financial data with ease. The company’s big-data based EHR systems — HealtheIntent and Millennium — deserve a mention in this regard. Amid the pandemic-led mayhem, the company continues to witness strong contributions from key areas like Population Health, Revenue Cycle and IT Works.
The Zacks Rank #3 company has an estimated long-term earnings growth rate of 13.4%. The company surpassed earnings estimates in the last four quarters, the positive surprise being 3%, on average.
Price and Consensus: CERN
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UnitedHealth Group Incorporated (UNH) : Free Stock Analysis Report
1Life Healthcare Inc (ONEM) : Free Stock Analysis Report
Humana Inc (HUM) : Free Stock Analysis Report
Health Catalyst Inc (HCAT) : Free Stock Analysis Report
Quest Diagnostics Incorporated (DGX) : Free Stock Analysis Report
Cerner Corporation (CERN) : Free Stock Analysis Report
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