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3 Medical Services Stocks to Buy Amid Industry Challenges
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Over the past two years, 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 economic volatility. Medpace (MEDP - Free Report) , HealthEquity (HQY - Free Report) and Progyny (PGNY - 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, COVID-19, although at its weakest now, has dealt a blow to the manual workforce in healthcare infrastructure. Going by a Forbes report, one of the most prominent issues in recent times for healthcare entities has been severe shortage of nursing staff, which resulted in a terrible impact on patient care and outcomes.
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
Staffing Shortage: Although over the past few months, the severity of the COVID-19 pandemic has significantly declined globally, the trauma of the past two years’ uncertainty and commotion within this field has forced frontline workers like doctors and medical staff to leave the field. Going by a National Institute of Health (NIH) report of 2022, the US Bureau of Labor Statistics projects that more than 275,000 additional nurses are needed from 2020 to 2030. Employment opportunities for nurses are projected to grow at a faster rate (9%) than all other occupations from 2016 through 2026. Earlier this year, 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, 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 #156, which places it in the bottom 37% 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 28.9% during the said time frame compared with the S&P 500 composite’s fall of 15.5%. The Medical sector has declined 16.8% 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 15.14X compared with the S&P 500’s 17.87X and the sector’s 23.04X.
Over the last five years, the industry has traded as high as 22.17X, as low as 11.88X, and at the median of 14.79X, 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.
Medpace Holdings: Headquartered in Cincinnati, OH, Medpace is a scientifically-driven, global, full-service clinical contract research organization (CRO), providing Phase I-IV clinical development services to the biotechnology, pharmaceutical and medical device industries. Medpace works to accelerate the global development of advanced medical therapeutics through its operating approach that leverages regulatory and therapeutic expertise across all major areas, including oncology, cardiology, metabolic disease, endocrinology, central nervous system and anti-viral and anti-infective.
Medpace’s long-term historical earnings growth rate is pegged at 27.3%. This Zacks Rank #1 company delivered an earnings surprise of 22%, on average, in the trailing four quarters.
Price and Consensus: MEDP
HealthEquity: Headquartered in Draper, UT, HealthEquity provides integrated solutions for healthcare account management, health reimbursement arrangement and flexible spending accounts for health plans, insurance companies and third-party administrators in the United States. HealthEquity’s flagship health savings account or HSA provided the company with a competitive edge in the MedTech industry. In addition to HSA, the company offers health reimbursement arrangements to regional employers.
HealthEquity’s long-term expected earnings growth rate is pegged at 26.3%. This Zacks Rank #2 company is expected to deliver revenue growth of 11.9% in 2022.
Price and Consensus: HQY
Progyny: Progyny is a fertility benefits management company redefining fertility and family building benefits. Progyny’s benefits solution empowers patients with education and guidance from a dedicated Patient Care Advocate, provides access to a premier network of fertility specialists using the latest science and technologies, reduces healthcare costs for the nation’s leading employers, and drives optimal clinical outcomes.
Progyny’s long-term expected earnings growth rate is pegged at 21.1%. The Zacks Consensus Estimate for Progyny’s 2022 revenues indicates a year-over-year surge of 56.6%. The stock carries a Zacks Rank #2.
Price and Consensus: PGNY
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3 Medical Services Stocks to Buy Amid Industry Challenges
Over the past two years, 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 economic volatility. Medpace (MEDP - Free Report) , HealthEquity (HQY - Free Report) and Progyny (PGNY - 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, COVID-19, although at its weakest now, has dealt a blow to the manual workforce in healthcare infrastructure. Going by a Forbes report, one of the most prominent issues in recent times for healthcare entities has been severe shortage of nursing staff, which resulted in a terrible impact on patient care and outcomes.
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
Staffing Shortage: Although over the past few months, the severity of the COVID-19 pandemic has significantly declined globally, the trauma of the past two years’ uncertainty and commotion within this field has forced frontline workers like doctors and medical staff to leave the field. Going by a National Institute of Health (NIH) report of 2022, the US Bureau of Labor Statistics projects that more than 275,000 additional nurses are needed from 2020 to 2030. Employment opportunities for nurses are projected to grow at a faster rate (9%) than all other occupations from 2016 through 2026. Earlier this year, 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, 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 #156, which places it in the bottom 37% 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 28.9% during the said time frame compared with the S&P 500 composite’s fall of 15.5%. The Medical sector has declined 16.8% 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 15.14X compared with the S&P 500’s 17.87X and the sector’s 23.04X.
Over the last five years, the industry has traded as high as 22.17X, as low as 11.88X, and at the median of 14.79X, 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.
Medpace Holdings: Headquartered in Cincinnati, OH, Medpace is a scientifically-driven, global, full-service clinical contract research organization (CRO), providing Phase I-IV clinical development services to the biotechnology, pharmaceutical and medical device industries. Medpace works to accelerate the global development of advanced medical therapeutics through its operating approach that leverages regulatory and therapeutic expertise across all major areas, including oncology, cardiology, metabolic disease, endocrinology, central nervous system and anti-viral and anti-infective.
Medpace’s long-term historical earnings growth rate is pegged at 27.3%. This Zacks Rank #1 company delivered an earnings surprise of 22%, on average, in the trailing four quarters.
Price and Consensus: MEDP
HealthEquity: Headquartered in Draper, UT, HealthEquity provides integrated solutions for healthcare account management, health reimbursement arrangement and flexible spending accounts for health plans, insurance companies and third-party administrators in the United States. HealthEquity’s flagship health savings account or HSA provided the company with a competitive edge in the MedTech industry. In addition to HSA, the company offers health reimbursement arrangements to regional employers.
HealthEquity’s long-term expected earnings growth rate is pegged at 26.3%. This Zacks Rank #2 company is expected to deliver revenue growth of 11.9% in 2022.
Price and Consensus: HQY
Progyny: Progyny is a fertility benefits management company redefining fertility and family building benefits. Progyny’s benefits solution empowers patients with education and guidance from a dedicated Patient Care Advocate, provides access to a premier network of fertility specialists using the latest science and technologies, reduces healthcare costs for the nation’s leading employers, and drives optimal clinical outcomes.
Progyny’s long-term expected earnings growth rate is pegged at 21.1%. The Zacks Consensus Estimate for Progyny’s 2022 revenues indicates a year-over-year surge of 56.6%. The stock carries a Zacks Rank #2.
Price and Consensus: PGNY