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3 Lucrative Stocks From the Promising Dental Supplies Industry

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The COVID-19 pandemic — a biological crisis of unprecedented nature — has altered the very nature and dynamics of the healthcare industry. The Zacks Medical - Dental Supplies industry bore the brunt of the closure of dental practices and lower patient visits due to the risk of exposure to the virus. However, the dental market has experienced substantial recovery, primarily owing to the easing of prior restrictions and mass vaccinations. Apart from this, rising dependence on Artificial Intelligence (AI) & Robotics and teledentistry and an increase in the number of patient visits are likely to help the industry thrive in the near term. Despite a disruption triggered by the COVID-19 resurgence, particularly in the months of December and January, the industry players 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 prevalent.

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. The dental stocks have been gaining significant attention post the weakness witnessed during the pandemic-induced disruptions. This space has continued to show signs of recovery and held its ground. Notably, dental care is being delivered safely, following the guidance and recommendations of the American Dental Association (“ADA”) and CDC. Backed by the rebound witnessed by the companies in this space, patient volume continues to see an encouraging increase despite the COVID-19 resurgences in the past several months.

Major Trends Shaping the Future of Medical Dental Supplies Industry

Rising Dependence on Teledentistry: Following the COVID-19 outbreak, most 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. Dependence on teledentistry will continue to increase during the pandemic and beyond as it enhances patient care. The introduction of digital solutions has helped dental professionals to conduct video consultations with existing patients, thereby enhancing treatment efficiency.

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. Further, 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.

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 #107, which places it in the top 42% 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 7.6% against the Zacks Medical sector’s decline of 14.3%. The S&P 500 rallied 14.9% in the same time frame.

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 18.42X compared with the S&P 500’s 20X and the sector’s 20.34X.

Over the last five years, the industry has traded as high as 20.17X and as low as 13.63X, with the median being at 17.47X, 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. The company’s fiscal third-quarter 2022 results exhibited yet another quarter with double-digit adjusted operating profit growth throughout all four segments, reflecting strength in the fundamentals across its businesses. McKesson has raised its fiscal 2022 earnings outlook, courtesy of robust fiscal third-quarter performance and higher contribution from the U.S. government’s COVID-19 vaccine distribution and kitting programs. For fiscal 2022, the company now projects adjusted EPS to be $23.55-$23.95 (up from the prior guided range of $22.35-$22.95). The raised outlook reflects solid operating performance and higher contribution from the U.S. government’s COVID-19 vaccine distribution, kitting and storage programs. The company played a crucial role in the COVID-19 response efforts in the United States and abroad through the distribution of COVID-19 vaccines, ancillary supply kits and COVID-19 tests. The company carries a Zacks Rank #2 (Buy). 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 2022 revenues indicates an improvement of 9.8%, while the same for earnings suggests growth of 38.9%. It has a trailing four-quarter earnings surprise of 20.6%, on average.

Price and Consensus: MCK

West Pharmaceutical Services Inc.: West Pharmaceutical is a leading global manufacturer with respect to the design and production of technologically advanced, high-quality, integrated containment and delivery systems for injectable drugs and healthcare products. It delivered a solid fourth-quarter 2021 performance supported by double-digit growth in its base business, sustained solid adoption of its high-value products (HVP) and strong execution and leveraging of its global operating model. The company’s HVP, along with productivity gains, continue to drive higher gross and operating margins. Per the fourth-quarter 2021 earnings call, the company introduced full-year 2022 outlook that assumes about 10% organic sales, backed by strong HVP sales and another robust year of both gross and operating profit margin expansion well above 100 basis points.

For this Exton, PA-based company, the Zacks Consensus Estimate for 2022 revenues suggests growth of 8.1%, while the same for earnings indicates an increase of 8.2%. It has a trailing four-quarter earnings surprise of 26.3%, on average. Presently, the company carries a Zacks Rank of 3 (Hold).

Price and Consensus: WST

Cardinal Health, Inc.: Cardinal Health is a nationwide 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 performance in the quarters ahead. Cardinal Health’s Medical and Pharmaceutical offerings provide the company with a competitive edge in the niche space. The company remains focused on evolving growth areas with investments and partnerships in Specialty, at Home and Services. The company witnessed revenue growth in its Pharmaceutical in second-quarter fiscal 2022, which is impressive.

For this Dublin, OH-based company, the Zacks Consensus Estimate for fiscal 2022 revenues suggests growth of 9.2%. CAH’s earnings yield of 9.1% compares favorably with the industry’s 3.7%. Currently, the company carries a Zacks Rank #3.

Price and Consensus: CAH



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