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Analyst Blog

Recently, Henry Schein (HSIC - Analyst Report) reviewed its 2012 performance, discussed competitive dynamics and current business environment during the Barclays Global Healthcare Conference.

The company also discussed its restructuring efforts for improved administration and management of its businesses. The initiatives are expected to support Henry Schein’s plan of geographic expansion.

Henry Schein remains optimistic about its largest business-domestic dental franchise, by which it expects to demonstrate broad-based growth on the back of a solid U.S. equipment market for 2013. Moreover, Henry Schein asserts that the growth of its franchise should accelerate with economic recovery in the U.S.

Although the demand for dental consumables was adversely affected in the most recent quarter due to Hurricane Sandy, management asserts that the end markets remained stable during the quarter. Further, the market trends are expected to improve in the ongoing year, especially in the second half of 2013. Considering this fact, the company expects to perform well in the U.S. market.

As far as the European market is concerned, management remains watchful of the capital spending environment and other macroeconomic concerns in the region, especially Southern Europe. The company is not expecting any immediate improvement in the economic scenario.

Competitive Landscape

Henry Schein has been on an acquisition spree. However, the company is also keeping a keen eye on similar advances by other players in the market. As per management, the takeover of PSSI World Medical by McKesson Corporation (MCK - Analyst Report) does not change the competitive landscape for its medical franchise in the U.S. Henry Schein witnessed organic growth of 7% for its global medical business in a low growth environment. This reflects the company’s ability to capture market share.

For its animal health business in the U.S., Henry Schein believes that it is well placed relative to its competitors to gain market share. The animal health market is the company’s fastest growing market. The acquisition of McAllister and ImproMed is expected to further boost Henry Schein’s results for this franchise.

Our View

Notably, the European economy remains an overhang for Henry Schein.  The industry is plagued by pricing pressure and competitive tussle for market share gains. We still believe that the company’s diversified business offers resilience against macroeconomic volatility and a tough competitive landscape.

The stock carries a Zacks Rank #3 (Hold). While we remain on the sidelines for Henry Schein, we are bullish on Becton Dickinson and Company (BDX - Analyst Report) and MWI Veterinary Supply (MWIV - Analyst Report). These stocks carry a Zacks Rank #2 (Buy).

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