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Analyst Blog

On Jul 12, 2013, we initiated our coverage on leading global distributor of health care products and services Henry Schein Inc. at Neutral. While we derive comfort from the market dynamics and aggressive acquisition strategy, we believe that increasing prominence of group purchasing organizations (GPO), difficult macroeconomic climate combined with foreign exchange headwind warrant caution. The stock carries a Zacks Rank #3 (Hold).

Why Neutral?

Henry Schein continues to record consistent growth. In the first quarter, the company reported strong year-over-year growth to start 2013 on a positive note. It continues to gain from its broad footprint in the fast growing animal health market.

Moreover, Henry Schein’s extensive range of products in different end-markets hedges it from any significant sales shortfall during an economic downturn. The company also stands to gain from the demographic trends in the U.S. Further, rising healthcare expenditure and increasing number of insured lives, following the healthcare reforms in the U.S. are major positive catalysts going forward.

We believe that Henry Schein’s aggressive strategy of tuck-in acquisitions should boost its growth profile. Earlier this year, the company declared the acquisition of Maddox Practice Group to boost its core dental business. Additionally, the company expands its geographic foothold on the back of lucrative buyouts. Meanwhile, Henry Schein’s buyback activity represents an encouraging prospect for its shareholders.

On the tepid side, the rising prominence of GPOs has increased pricing pressure in the industry. The contagion of global economic problems continues to remain an overhang on the healthcare industry. For Henry Schein, the macroeconomic environment in Europe and weak capital spending environment are looming headwinds. Currency headwinds and tough competition are other areas of concern.

Other Stocks to Consider

While we have a neutral stance on Henry Schein, other industry players like Align Technology Inc. , The Cooper Companies Inc. and Edwards Lifesciences Corp. appear impressive. These stocks carry a Zacks Rank #2 (Buy).

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