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3 Medical Services Stocks to Buy as Industry Trends Improve
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The Medical Services sector is evolving at a rapid pace. The COVID-19 pandemic accelerated the transition to distant treatment options. Even though the pandemic has ended, digital healthcare treatment continues to be indispensable, backed by the adoption of data and analytics. Telemedicine-focused online medical and AI-powered technology services, which flourished during the pandemic, continue to witness significant demand.
Going by a recent WNS report, the global healthcare analytics market is expected to surpass $43 billion in 2023. Primary stakeholders — payers, healthcare professionals and patients — will benefit from the all-new insights, services and levels of experience that next-generation healthcare-related data and analytical capabilities provide. Stocks like Medpace (MEDP - Free Report) , Doximity (DOCS - Free Report) and Biodesix (BDSX - Free Report) are expected to gain the most from the rapidly transforming healthcare services landscape.
However, the pandemic dealt a huge and lingering blow to the manual workforce in healthcare infrastructure. Per a February 2023 report by Research and Markets, WHO estimates a shortage of 10 million health workers in low- and lower-middle-income countries by 2023.
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 solution 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.
3 Trends Shaping the Future of the Medical Services Industry
Staffing Shortage: Despite the end of the healthcare emergency (on May 5, WHO declared the end of COVID-19 as a global health emergency), the trauma of the past few years’ uncertainty and commotion has forced frontline workers like doctors and medical staff to leave the field. Added to this, a drastic increase in the aging population in recent times (daily, about 10,000 individuals aged 59-77 are joining Medicare plans) has made the healthcare staffing shortage more pronounced. Going by the article, "A Public Health Crisis: Staffing Shortages in Health Care," published in Favorite Healthcare Staffing, the WHO predicts a shortfall of 15 million health care workers worldwide in 2030. The International Centre on Nurse Migration projects there will be a shortage of 13 million nurses by 2030, up from an estimated shortage of 6 million before the pandemic. Going by a Research and Markets report, the gap between healthcare demand and supply of nurses and doctors is widening and more evident in developing countries due to the limited capacity and number of medical schools. Consequently, employment opportunities for nurses are projected to grow at a faster rate than all other occupations.
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 2023 digital health market report by Grand View Research suggests that this market, valued at $211 billion in 2022, will witness an 18.6% CAGR through 2030. 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.
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 Research and Markets report, the global healthcare staffing market size is expected to reach $62.8 billion by 2030, registering a CAGR of 6.93% from 2023 to 2030.
Zacks Industry Rank Indicates Improving Prospects
The Zacks Medical Services industry falls within the broader Zacks Medical sector. It carries a Zacks Industry Rank #85, which places it in the top 34% 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 bright 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 sector as well as the S&P 500 over the past year. The stocks in this industry have collectively lost 11.8% during the said time frame against the S&P 500 composite’s rise of 13.7%. The Medical sector has declined 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 13.68X compared with the S&P 500’s 19.27X and the sector’s 21.92X.
Over the last five years, the industry has traded as high as 21.25X, as low as 12.23X, and at the median of 15.06X, 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 from the Medical Services industry that have been witnessing positive earnings estimate revisions and carry a Zacks Rank #2 (Buy) each at present.
Medpace: Based in Cincinnati, OH, Medpace is a scientifically driven, global, full-service clinical contract research organization providing Phase I-IV clinical development services to the biotechnology, pharmaceutical and medical device industries. In the last reported third quarter of 2023, the company registered a 28.3% increase in revenues, reflecting a backlog conversion rate of 19.1%.
Medpace’s 2024 expected earnings growth rate is pegged at 16.2%. The Zacks Consensus Estimate for Medpace’s 2024 revenues indicates a year-over-year rise of 15.5%.
Price and Consensus: MEDP
Doximity: It is a renowned digital platform for U.S. medical professionals. The company's network members include over 80% of U.S. physicians across all specialties and practice areas. Doximity provides its verified clinical membership with digital tools built for medicine. On the second quarter of fiscal 2024 earnings call, the company noted that over 550,000 unique providers used its generative AI, telehealth, messaging and scheduling workflow tools to provide better care for their patients.
Doximity’s fiscal 2024 earnings growth rate is pegged at 17.8%. The Zacks Consensus Estimate for DOCS’ 2024 revenues indicates a year-over-year expected rise of 11.7%.
Price and Consensus: DOCS
Biodesix: This is a diagnostic solutions company with a focus on lung disease. The company develops diagnostic tests addressing important clinical questions by combining multi-omics through the power of artificial intelligence. Biodesix currently offers five Medicare-covered tests for patients with lung diseases.
Biodesix’s 2023 expected earnings growth rate is pegged at 52.9%. The Zacks Consensus Estimate for BDSX’s 2023 revenues indicates a year-over-year rise of 31.3%.
Price and Consensus: BDSX
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3 Medical Services Stocks to Buy as Industry Trends Improve
The Medical Services sector is evolving at a rapid pace. The COVID-19 pandemic accelerated the transition to distant treatment options. Even though the pandemic has ended, digital healthcare treatment continues to be indispensable, backed by the adoption of data and analytics. Telemedicine-focused online medical and AI-powered technology services, which flourished during the pandemic, continue to witness significant demand.
Going by a recent WNS report, the global healthcare analytics market is expected to surpass $43 billion in 2023. Primary stakeholders — payers, healthcare professionals and patients — will benefit from the all-new insights, services and levels of experience that next-generation healthcare-related data and analytical capabilities provide. Stocks like Medpace (MEDP - Free Report) , Doximity (DOCS - Free Report) and Biodesix (BDSX - Free Report) are expected to gain the most from the rapidly transforming healthcare services landscape.
However, the pandemic dealt a huge and lingering blow to the manual workforce in healthcare infrastructure. Per a February 2023 report by Research and Markets, WHO estimates a shortage of 10 million health workers in low- and lower-middle-income countries by 2023.
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 solution 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.
3 Trends Shaping the Future of the Medical Services Industry
Staffing Shortage: Despite the end of the healthcare emergency (on May 5, WHO declared the end of COVID-19 as a global health emergency), the trauma of the past few years’ uncertainty and commotion has forced frontline workers like doctors and medical staff to leave the field. Added to this, a drastic increase in the aging population in recent times (daily, about 10,000 individuals aged 59-77 are joining Medicare plans) has made the healthcare staffing shortage more pronounced. Going by the article, "A Public Health Crisis: Staffing Shortages in Health Care," published in Favorite Healthcare Staffing, the WHO predicts a shortfall of 15 million health care workers worldwide in 2030. The International Centre on Nurse Migration projects there will be a shortage of 13 million nurses by 2030, up from an estimated shortage of 6 million before the pandemic. Going by a Research and Markets report, the gap between healthcare demand and supply of nurses and doctors is widening and more evident in developing countries due to the limited capacity and number of medical schools. Consequently, employment opportunities for nurses are projected to grow at a faster rate than all other occupations.
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 2023 digital health market report by Grand View Research suggests that this market, valued at $211 billion in 2022, will witness an 18.6% CAGR through 2030. 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.
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 Research and Markets report, the global healthcare staffing market size is expected to reach $62.8 billion by 2030, registering a CAGR of 6.93% from 2023 to 2030.
Zacks Industry Rank Indicates Improving Prospects
The Zacks Medical Services industry falls within the broader Zacks Medical sector. It carries a Zacks Industry Rank #85, which places it in the top 34% 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 bright 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 sector as well as the S&P 500 over the past year. The stocks in this industry have collectively lost 11.8% during the said time frame against the S&P 500 composite’s rise of 13.7%. The Medical sector has declined 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 13.68X compared with the S&P 500’s 19.27X and the sector’s 21.92X.
Over the last five years, the industry has traded as high as 21.25X, as low as 12.23X, and at the median of 15.06X, 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 from the Medical Services industry that have been witnessing positive earnings estimate revisions and carry a Zacks Rank #2 (Buy) each at present.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here..
Medpace: Based in Cincinnati, OH, Medpace is a scientifically driven, global, full-service clinical contract research organization providing Phase I-IV clinical development services to the biotechnology, pharmaceutical and medical device industries. In the last reported third quarter of 2023, the company registered a 28.3% increase in revenues, reflecting a backlog conversion rate of 19.1%.
Medpace’s 2024 expected earnings growth rate is pegged at 16.2%. The Zacks Consensus Estimate for Medpace’s 2024 revenues indicates a year-over-year rise of 15.5%.
Price and Consensus: MEDP
Doximity: It is a renowned digital platform for U.S. medical professionals. The company's network members include over 80% of U.S. physicians across all specialties and practice areas. Doximity provides its verified clinical membership with digital tools built for medicine. On the second quarter of fiscal 2024 earnings call, the company noted that over 550,000 unique providers used its generative AI, telehealth, messaging and scheduling workflow tools to provide better care for their patients.
Doximity’s fiscal 2024 earnings growth rate is pegged at 17.8%. The Zacks Consensus Estimate for DOCS’ 2024 revenues indicates a year-over-year expected rise of 11.7%.
Price and Consensus: DOCS
Biodesix: This is a diagnostic solutions company with a focus on lung disease. The company develops diagnostic tests addressing important clinical questions by combining multi-omics through the power of artificial intelligence. Biodesix currently offers five Medicare-covered tests for patients with lung diseases.
Biodesix’s 2023 expected earnings growth rate is pegged at 52.9%. The Zacks Consensus Estimate for BDSX’s 2023 revenues indicates a year-over-year rise of 31.3%.
Price and Consensus: BDSX