Back to top

Image: Shutterstock

3 Medical Services Stocks Braving Near-Term Industry Headwinds

Read MoreHide Full Article

Since the onset of the COVID-19 crisis, with digital healthcare treatment becoming indispensable, the medical services industry has been witnessing significant demand for telemedicine-focused online medical and AI-powered technology services. Companies in the remote healthcare space have seen their stocks rally amid the economic volatility. HealthEquity (HQY - Free Report) AMN Healthcare Services (AMN - Free Report) and ModivCare (MODV - Free Report) are a few such stocks. During the pandemic, observing the surging demand for distant treatment options, many healthcare companies that were not tech-based traditionally transformed themselves into technology-based ones to survive in the market.

Meanwhile, the resurgence of COVID-19 cases has dealt a blow to the manual workforce and healthcare infrastructure as patients are once again deferring their non-essential procedures and hospital stay. At the same time, although the severity of the pandemic has significantly reduced, hospital staffing shortages are being reported across the nation, disrupting healthcare services. Further, COVID-19 has taken a staggering toll on the National Health Expenditure (NHE) plan, resulting in a massive commotion in terms of healthcare spending, utilization and employment trends.

Industry Description

The Zacks 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, wireless MedTech companies, third-party testing labs, surgical facility providers, and healthcare workforce solutions providers among others. Over the years, this industry has strategically moved from volume- to value-based care. This changing pattern of care calls for advanced facilities, thus increasing the need to appoint specialized external service providers. With the growing importance of effective healthcare management, the medical service industry has become an integral part of the modern healthcare system.

4 Trends Shaping the Future of the Medical Services Industry

COVID-Led Staffing Shortage: Although, over the past few months, the severity of the COVID-19 pandemic has significantly declined in the United States, the emergence of new variants, as well as a new category of outbreak like human monkeypox, has forced frontline workers like doctors and medical staff to leave the field. Going by a July 2022 report of U.S. News, an estimated 1.5 million healthcare jobs from the non-COVID sectors were lost in the first two months of COVID-19. Although the situation stabilized later, the healthcare employment scenario never returned to the pre-pandemic level. There are fewer healthcare workers in the field who are being exposed to a much larger set of patient population, increasing the burnout levels of the workforce. Going by the report, the American Hospital Association termed this workforce shortage in hospitals a “national emergency,” projecting the overall shortage of nurses to reach 1.1 million by the end of 2022.

Disruption in Healthcare Spending: Going by a Health Affairs report, CMS’ annual update to the National Health Expenditure Accounts (NHEA), released in December 2021, clearly showed that NHE increased 4.6% in 2019, showing a relatively stable trend of annual growth since 2016. However, this consistency was upended by COVID-19 beginning in March 2020, resulting in massive short-term health sector spending and employment disruptions.

Digital Revolution Amid the Pandemic: With an increase in the adoption of digital platforms within the medical device space, remote monitoring, robotic surgeries, big-data analytics, 3D printing and electronic health records are gaining prominence in the United States. A 2020 Digital Health Market report suggests that this market, valued at $106 billion in 2019, will witness a 28.5% CAGR through 2026. Other reports suggest that the companies that adopted artificial intelligence technologies witnessed a 50% reduction in treatment costs and experienced more than 50% improvement in patient outcomes. Amid the pandemic, this line of healthcare is becoming a major choice for contactless healthcare services.

Nursing Care Market Boom: 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 a report published by Data Bridge Market research, the U.S. nursing care market size is expected to witness a CAGR of 5.1% during 2020-2027.

Zacks Industry Rank Indicates Dull Prospects

The Zacks Medical Services industry falls within the broader Zacks Medical sector. It carries a Zacks Industry Rank #151, which places it in the bottom 40% of more than 250 Zacks industries.

The group’s 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 Underperforms Sector and S&P 500

The Medical Services Industry has underperformed its own sector as well as the S&P 500 over the past year. The stocks in this industry have collectively lost 32.6% during the said time frame compared with the S&P 500 composite’s fall of 8.9%. The Medical sector has declined 21.6% in the same time frame.

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 16.17X compared with the S&P 500’s 17.70X and the sector’s 21.30X.

Over the last five years, the industry has traded as high as 22.14X, as low as 11.79X, and at the median of 14.56X, as the charts below show.

Price-to-Earnings Forward Twelve Months (F12M)

Price-to-Earnings Forward Twelve Months (F12M)



3 Stocks to Buy Right Now

Below are three stocks within the Medical Services industry that have been witnessing positive earnings estimate revisions and carry a Zacks Rank of #1 (Strong Buy) or #2 (Buy) at present.

You can see the complete list of today’s Zacks #1 Rank stocks here.

AMN Healthcare Services: AMN Healthcare recruits and places nurses, physicians, and other healthcare professionals in travel or permanent assignments in acute-care facilities, physician practice groups, and other healthcare facilities. Per AMN Healthcare, increased healthcare utilization and a tight labor market have led to record high demand in several areas of the company’s business. This, in turn, bodes well for AMN Healthcare’s collaborations and innovations, which are intended to provide greater access to patient care, thus fueling further confidence.

AMN Healthcare’s long-term historical earnings growth rate is pegged at 28.8%. This Zacks Rank #1 company delivered an earnings surprise of 15.7%, on average, in the trailing four quarters.

Price and Consensus: AMN

ModivCare: ModivCare is a technology-enabled healthcare services company, providing a suite of integrated supportive care solutions for public and private payors and patients. ModivCare offers non-emergency medical transportation services for Medicaid or Medicare-eligible members whose limited mobility or financial resources hinder their ability to access necessary healthcare and social services.

ModivCare’s long-term historical earnings growth rate is pegged at 34.6%. The Zacks Consensus Estimate for ModivCare’s 2022 revenues indicates a year-over-year surge of 19.5%. The stock carries a Zacks Rank #1.

Price and Consensus: MODV

HealthEquity: HealthEquity’s business currently benefits from robust contributions from solid growth in its flagship health savings account HSA. In addition to HSA, the company offers health reimbursement arrangements to regional employers. Solid sales of new HSAs in the reported quarter are encouraging.

HealthEquity’s Further and HealthSavings HSA portfolio buyouts (which closed on Nov 1, 2021 and Mar 2, 2022, respectively) raise optimism.

HealthEquity’s long-term expected earnings growth rate is pegged at 24.3%. This Zacks Rank #2 company is expected to deliver revenue growth of 10.2% in 2022.

Price and Consensus: HQY


See More Zacks Research for These Tickers

Normally $25 each - click below to receive one report FREE:

AMN Healthcare Services Inc (AMN) - free report >>

HealthEquity, Inc. (HQY) - free report >>

ModivCare Inc. (MODV) - free report >>

Published in