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3 Stocks to Tap the Promising Dental Supplies Industry

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The COVID-19 pandemic, which has been a biological crisis of unprecedented nature, has altered the very nature and dynamics of the healthcare industry. The Zacks Medical - Dental Supplies industry was impacted significantly by the closure of dental practices and lower patient visits due to the risk of infection. But recovery in dental markets has picked up pace, primarily owing to the easing of prior restrictions and ramped up vaccinations. Apart from this, rising dependence on Artificial Intelligence (AI) & Robotics and teledentistry, and increase in number of patient visits are likely to help the industry thrive in the near term. Despite the news about the highly-transmissible coronavirus Delta variant doing the rounds, the companies in this space have not shown signs of slowing down yet. Industry participants like McKesson Corporation (MCK - Free Report) , West Pharmaceutical Services Inc. (WST - Free Report) and Cardinal Health Inc. (CAH - Free Report) are likely to gain from the prospects. Some key players in this space that also deserve mention are Becton Dickinson and Company (BDX - Free Report) , Patterson Companies, Inc. (PDCO - Free Report) , Cooper Companies (COO - Free Report) , Laboratory Corporation of America Holdings (LH - Free Report) , Henry Schein, Inc. (HSIC - Free Report) and AmerisourceBergen Corporation (ABC - Free Report) .

Industry Description

This industry primarily comprises designers, developers, manufacturers and marketers of dental consumables, dental laboratory products and dental specialty items. Some of the industry participants also provide practice management and clinical software, patient education systems, and office forms and stationery. After a pandemic-battered 2020, the dental stocks are gaining substantial attention. The dental market is expected to receive a significant boost from the pandemic-led pent-up demand, when availing services were largely deferred along with technological advances being made in the field. Interestingly, the dental sector has even secured a place in the government’s budget allocation for fiscal 2022. The budget is aiming to improve access to dental coverage in Medicare, thus making it easier for eligible people to get and stay covered in Medicaid.

Major Trends Shaping the Future of Medical Dental Supplies Industry

Rising Dependence on Teledentistry: Following the COVID-19 outbreak, most of the dental practices were unable to offer routine services in the office. Teledentistry, which is a provision to offer dental services through interactive video, audio or other electronic media to provide consultation, diagnosis and treatment, helped clinicians and patients amid this crisis. In order to enhance patient care, dependence on teledentistry will continue to increase during the pandemic and beyond. For instance, Align Technology’s (ALGN - Free Report) investment in a number of teledentistry solutions has helped to make remote check-ups a reality. The launch of digital solutions — Invisalign Virtual Appointment and Invisalign Virtual Care — that enable dental professionals to conduct video consultations with existing Invisalign patients reflect the company’s commitment toward enhancing treatment efficiency. Such initiatives position the company well amid the crisis.

Digital Influence: The latest technologies help dentists in carrying out minimally-invasive procedures that ensure precision and efficiency, thereby reducing patients’ trauma. The industry players actively promote digital workflows for general dentistry and dental specialties. Dental 3D printers are revolutionizing dentistry. These reduce time and cost through efficient utilization of orthodontics and dental practices. In fact, dental 3D printers became mainstream in 2020. To give an instance, DENTSPLY SIRONA (XRAY - Free Report) has launched a single tooth replacement solution — Azento — in the United States to transform digital-implant workflow in dental care.

AI & Robotics: AI has been shaping the dental industry for quite some time now. This decade is likely to see the rise of computing power, which has become more accessible and affordable for dental practitioners. It will transform the way dentists work and patients receive treatment, especially with the introduction of robot dentists. Robots are now able to perform minimally-invasive dental work like filling cavities and extracting teeth. A report by National Business Capital & Services suggests that AI dentistry had already become mainstream by 2019-end.

Zacks Industry Rank Indicates Bright Prospects

The Zacks Medical Dental Supplies industry falls within the broader Zacks Medical sector.

It carries a Zacks Industry Rank #90, which places it in the top 35% of more than 250 Zacks industries.

The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all member stocks, indicates bleak 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.

Before we present a few dental supplies stocks that you may want to consider for your portfolio, let’s take a look at the industry’s recent stock-market performance and valuation picture.

Industry Performance

The industry has outperformed its own sector in the past year but fell short of the Zacks S&P 500 composite in the same time frame.

Stocks in this industry have collectively gained 22% against the Zacks Medical sector’s decline of 1.9%. Meanwhile, the S&P 500 rallied 37.5%.

One Year Price Performance

Industry's Current Valuation

On the basis of the forward 12-month price-to-earnings (P/E) ratio, which is commonly used for valuing medical stocks, the industry is currently trading at 19.96X compared with the S&P 500’s 22.16X and the sector’s 23.11X.

Over the last five years, the industry has traded as high as 19.77X and as low as 13.63X, with the median being at 17X, as the charts below show.



Price-to-Earnings Forward Twelve Months (F12M)



 

Price-to-Earnings Forward Twelve Months (F12M)

3 Promising Dental Supplies Stocks

McKesson Corporation: McKesson is a health care services and information technology company. Despite the volatile and challenging environment in fiscal 2021, its earnings and revenues grew 15% and 3%, respectively. The Zacks Rank #3 (Hold) company’s fiscal 2022 adjusted earnings per share outlook of $18.85 to $19.45, reflects a return to robust growth in its core businesses, continued role in the COVID-19 vaccine efforts, investments in growth and a balanced approach to capital deployment. Though McKesson’s prescription volume and primary care patient visit trends were adversely affected throughout the fiscal year of 2021, its strong business model and differentiated capabilities aided in business growth and delivering value to its shareholders. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

For this San Francisco, CA-based company, the Zacks Consensus Estimate for 2021 revenues indicate an improvement of 4.7%. It has a trailing four-quarter earnings surprise of 13.5%, on average.

Price and Consensus: MCK



 

West Pharmaceutical Services Inc.: West Pharmaceutical is a leading global manufacturer with respect to design and production of technologically advanced, high-quality, integrated containment and delivery systems for injectable drugs and healthcare products. It delivered solid first-quarter 2021 performance aided by robust organic sales growth in both of its base businesses and growing demand for products related to COVID-19 vaccines. The company’s high-value products (HVP) continue to drive higher gross and operating margins. A raised financial outlook for 2021 also favors the stock.

For this Exton, PA-based Zacks Rank #2 (Buy) company, the Zacks Consensus Estimate for 2021 revenues suggest growth of 23.9%. It has a trailing four-quarter earnings surprise of 28.5%, on average.

Price and Consensus: WST



 

Cardinal Health, Inc.: Cardinal Health is a nation-wide drug distributor and provider of services to pharmacies, healthcare providers and manufacturers. The company’s Pharmaceutical segment is the second largest pharmaceutical distributor in the United States. The segment's products and services comprise pharmaceutical distribution, manufacturer and specialty services, and nuclear and pharmacy services, which are expected to drive the quarters ahead. Cardinal Health’s Medical and Pharmaceutical offerings provide the company with a competitive edge in the niche space. It remains focused on evolving growth areas with investments and partnerships in Specialty, at Home and Services. The company carries a Zacks Rank of 3.

For this Dublin, OH-based company, the Zacks Consensus Estimate for fiscal 2021 revenues reflect growth of 4.9%. It has a trailing four-quarter earnings surprise of 15.9%, on average.

Price and Consensus: CAH