The COVID-19 crisis has drastically transformed the fortune of the medical services industry. The industry has been witnessingsignificant demand for telemedicine-focused online medical services. Companies in the remote healthcare space have seen their stocks rally amid the economic volatility.
Apollo Medical ( AMEH Quick Quote AMEH - Free Report) , bioMérieux S.A. ( BMXMF Quick Quote BMXMF - Free Report) , CareDx ( CDNA Quick Quote CDNA - Free Report) , Inc. and Harrow Health, Inc. ( HROW Quick Quote HROW - Free Report) are a few such stocks. However, the resurgence of new COVID-19 cases has dealt a blow as patients are once again deferring their non-essential procedures and hospital stay. Industry Description
Medical Services industry comprises third-party service providers and caregivers appointed by core healthcare companies for economies of scale. The industry includes pharmacy benefit managers, contract research organizations (CRO), mobile and wireless medical technology companies, third-party testing labs, surgical facility providers, and healthcare workforce solutions providers among others.
Over the past few years, the healthcare industry has strategically moved from volume- to value-based care. This changing pattern of care calls for efficient and better-quality facilities, thus gradually increasing the need to appoint specialized external service providers.
In recent times, biotechnology and pharmaceutical companies have often been seen outsourcing clinical development and data-solution services to improve quality of medical care at competitive costs. With growing importance of effective healthcare management, the medical service industry has become an integral part of the modern healthcare mechanism.
4 Trends Shaping the Future of the Medical Services Industry : After strong signs of economic rebound on gradual lifting of restrictions in many states and regions, the resurgence of COVID-19 cases resulted in ‘Limited’ and ‘Regional’ stay at home restrictions since the end of November. This once again deferred non-essential and elective procedures. As experienced during the initial phase of the pandemic, this situation is likely to affect many medical services companies, once again pulling down their revenues. COVID-Led Procedure Deferral Continues : With an increase in the adoption of digital platforms within the medical device space, remote monitoring, robotic surgeries, big-data analytics, bioprinting, 3D printing, electronic health records (EHR), predictive analytics, real-time alerting and revenue cycle management services are gaining prominence in the United States. A June 2019 Digital Revolution amid Pandemic Health care News report suggests that this market, valued at $123 billion in 2018, is witnessing CAGR of 25%. Various other reports suggest that companies that adopted artificial intelligence technologies witnessed a 50% reduction in treatment costs and also experienced more than 50% improvement in patient outcome. Amid the pandemic, this line of healthcare is becoming a major choice for contactless healthcare services Earlier in 2020, the Centers for Disease Control and Prevention asked healthcare service communities to increase the use of telemedicine.
Added to this, the House passed an
emergency spending bill, allowing Medicare reimbursement for telehealth during crisis. Further, the FDA approved the expanded use of remote patient monitoring technologies with the aim of minimizing hospital visits, thereby reducing the risk of exposure to the virus. MedTech companies are currently collaborating with technology majors like Google, Apple and IBM to grow in this space. : With rising cognizance about the benefits of specialized medical caregiving, the need for healthcare workforce/staffing service providers has increased significantly. For example, the demand for nurses has increased manifold driven by the rising incidence of chronic disorders in the United States and is expected to be high in the days ahead. Going by Nursing Care Market Boom a report published by WFMJ, the U.S. nursing care market size is expected to be worth$460 billion in 2020 and witness CAGR of 6% during 2020-2025. : With a significant reduction in regulatory and tax burden on U.S. healthcare companies, the space is finally making progress in terms of technology adoption. This is creating opportunities for mobile and wireless medical technology companies. This apart, treatments are becoming less invasive with shorter recovery times, thanks to the specialized skills and advanced techniques of surgical facility providers. In the future, concepts like ‘bed less hospitals’ are expected to gain popularity. Currently, third-party laboratory testing providers and contract research organizations are also seeing a surge in demand, owing to the growing need for complex tests, services and clinical research. New Technology Adoption Zacks Industry Rank Indicates Weak Prospects
The Zacks Medical Services industry falls within the broader Zacks
Medical sector. It carries a Zacks Industry Rank #180, which places it in the bottom 29% of more than 250 Zacks industries.
Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates dull 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 Sector, Lags S&P 500
The Medical Services Industry has outperformed its own sector but underperformed the S&P 500 over the past year. The stocks in this industry have collectively gained 13% during the said time frame compared with the S&P 500 composite’s rise of 13.5% and the Medical Sector’s 8.5% rise.
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 48.61X compared with the S&P 500’s 22.67X and the sector’s 22.46X.
Price-to-Earnings Forward Twelve Months (F12M)
Over the last five years, the industry has traded as high as 48.61X, as low as 21.21X, and at the median of 26.26X, as the charts below show.
Price-to-Earnings Forward Twelve Months (F12M)
4 Stocks to Buy Right Now
Below are four stocks within the Medical Services 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 Apollo Medical Holdings, Inc.: This is a physician-centric, technology-enabled healthcare management company. Leveraging its proprietary population health management and healthcare delivery platform, Apollo Medical operates an integrated, value-based healthcare model. The company is currently increasing its clinical expertise and delivery by investing in a proprietary technology platform. Price and Consensus: AMEH
The company currently carries a Zacks Rank of 2. The Zacks Consensus Estimate for 2020 earnings indicates a year-over-year surge of 113.9%. The company delivered earnings surprise of 150.3%, on average, in the trailing four quarters.
bioMérieux S.A.: This medical services company is a leader in the field of in-vitro diagnostics. The company has presence in 44 countries and serves more than 160 countries with the support of a large network of distributors. In a breakthrough, in November 2020, the company announced the expansion of the CE marking of its ARGENErange for the detection of SARS-CoV-2. Price and Consensus: BMXMF
The company holds a Zacks Rank of 2, at present. The Zacks Consensus Estimate for 2020 earnings indicates year-over-year growth of 58.5%. The consensus estimate for sales indicates year-over-year growth of 30.8%.
CareDx, Inc.: This is a precision medicine solutions company focused on the discovery, development and commercialization of clinically differentiated, high-value healthcare solutions for transplant patients and caregivers. In November, as a major development, the company received favorable reimbursement pricing for its AlloSure Heart, which is expected to broaden accessibility to HeartCare, a multi-modality and non-invasive solution for managing the care of transplant patients. Price and Consensus: CDNA
Currently, the company carries a Zacks Rank of 2. The Zacks Consensus Estimate for 2020 earnings suggests a year-over-year jump of 40%. The consensus estimate for sales indicates year-over-year growth of 47.4%.
Harrow Health, Inc.: This healthcare services company owns a portfolio of healthcare businesses, including ImprimisRx, a leading ophthalmology outsourcing facility and pharmaceutical compounding business. The company also holds large equity positions in Eton Pharmaceuticals, Surface Ophthalmics, and Melt Pharmaceuticals. Price and Consensus: HROW
The company holds a Zacks Rank of 2, at present. The Zacks Consensus Estimate for 2021 earnings indicates year-over-year growth of 283.33%. The Zacks Consensus Estimate for sales indicates year-over-year growth of 27.8%.