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3 Medical Services Stocks to Buy Amid Industry Headwinds
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The Medical Services sector is evolving at a rapid pace. The COVID-19 pandemic accelerated the transition to remote 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 $50.5 billion in 2024. 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 Elevance Health, Inc. (ELV - Free Report) , Cencora, Inc. (COR - Free Report) and HealthEquity (HQY - 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. In April 2023, the National Council of State Boards of Nursing revealed that 100,000 nurses left the workforce during the pandemic, and by 2027, almost 900,000, or almost one-fifth of 4.5 million total registered nurses, intend to leave the workforce, threatening the national health care system at large if solutions are not enacted.
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 (WHO declared the end of COVID-19 as a global health emergency on May 5), 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 healthcare 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: 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 2024 digital health market report by Statista suggests that this market will witness a 9.2% CAGR from 2024 to 2028, resulting in a projected market volume of $275 billion by 2028. 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 6.9% from 2023 to 2030.
Zacks Industry Rank Indicates Dull Prospects
The Zacks Medical Services industry falls within the broader Zacks Medical sector. It carries a Zacks Industry Rank #177, which places it in the bottom 29% 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 sector as well as the S&P 500 over the past year. The stocks in this industry have collectively lost 3.8% during the said time frame against the S&P 500 composite’s rise of 22.9%. The Medical sector has improved 5.5% 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 13.21X compared with the S&P 500’s 20.74X and the sector’s 23.24X.
Over the last five years, the industry has traded as high as 21.14X, as low as 12.22X, and at the median of 14.96X, 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.
Elevance Health: Based in Indianapolis, IN, Elevance Health is one of the largest publicly traded health insurers in the United States in terms of membership. The company was previously named Anthem, Inc. With the latest name change, the company announced a rejig of its brand portfolio. The company is expected to organize its brand portfolio into Anthem Blue Cross/Anthem Blue Cross and Blue Shield, Wellpoint, and Carelon core got-to-market brands. The company's top-line improvement remains impressive, witnessing continuous growth over the past years on the back of premium rate increases, higher memberships and product expansions.
Elevance Health’s 2024 expected earnings growth rate is pegged at 11.9%. The Zacks Consensus Estimate for Elevance Health’s 2024 revenues indicates a year-over-year rise of 1.8%.
Price and Consensus: ELV
Cencora: Chesterbrook, PA-based Cencora is one of the world’s largest pharmaceutical services companies, which focuses on providing drug distribution and related services to reduce healthcare costs and improve patient outcomes. The company was previously known as AmerisourceBergen Drug Corporation. Cencora is expected to benefit from growth of generics in the long run. Strong organic growth rates in the U.S. pharmaceutical market, improving patient access to care, improved economic conditions and population demographics, introduction of innovative drugs like hepatitis C drugs, and a continued good brand pricing environment should drive growth.
Cencora’s fiscal 2024 earnings growth rate is pegged at 10%. The Zacks Consensus Estimate for Cencora’s fiscal 2024 revenues indicates a year-over-year expected rise of 9.7%.
Price and Consensus: COR
HealthEquity: Draper, UT-headquartered HealthEquity provides integrated solutions for health-care account management, health reimbursement arrangement and flexible spending accounts for health plans, insurance companies and third-party administrators in the United States. HealthEquity offers multiple cloud-based platforms, which are accessed by its members online via a desktop or mobile device. Individuals can make health-saving and spending decisions and pay healthcare bills, among other activities, via these platforms.
HealthEquity’s fiscal 2025 expected earnings growth rate is pegged at 29.7%. The Zacks Consensus Estimate for HQY’s fiscal 2025 revenues indicates a year-over-year rise of 15.8%.
Price and Consensus: HQY
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3 Medical Services Stocks to Buy Amid Industry Headwinds
The Medical Services sector is evolving at a rapid pace. The COVID-19 pandemic accelerated the transition to remote 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 $50.5 billion in 2024. 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 Elevance Health, Inc. (ELV - Free Report) , Cencora, Inc. (COR - Free Report) and HealthEquity (HQY - 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. In April 2023, the National Council of State Boards of Nursing revealed that 100,000 nurses left the workforce during the pandemic, and by 2027, almost 900,000, or almost one-fifth of 4.5 million total registered nurses, intend to leave the workforce, threatening the national health care system at large if solutions are not enacted.
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 (WHO declared the end of COVID-19 as a global health emergency on May 5), 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 healthcare 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: 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 2024 digital health market report by Statista suggests that this market will witness a 9.2% CAGR from 2024 to 2028, resulting in a projected market volume of $275 billion by 2028. 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 6.9% from 2023 to 2030.
Zacks Industry Rank Indicates Dull Prospects
The Zacks Medical Services industry falls within the broader Zacks Medical sector. It carries a Zacks Industry Rank #177, which places it in the bottom 29% 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 sector as well as the S&P 500 over the past year. The stocks in this industry have collectively lost 3.8% during the said time frame against the S&P 500 composite’s rise of 22.9%. The Medical sector has improved 5.5% 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 13.21X compared with the S&P 500’s 20.74X and the sector’s 23.24X.
Over the last five years, the industry has traded as high as 21.14X, as low as 12.22X, and at the median of 14.96X, 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.
Elevance Health: Based in Indianapolis, IN, Elevance Health is one of the largest publicly traded health insurers in the United States in terms of membership. The company was previously named Anthem, Inc. With the latest name change, the company announced a rejig of its brand portfolio. The company is expected to organize its brand portfolio into Anthem Blue Cross/Anthem Blue Cross and Blue Shield, Wellpoint, and Carelon core got-to-market brands. The company's top-line improvement remains impressive, witnessing continuous growth over the past years on the back of premium rate increases, higher memberships and product expansions.
Elevance Health’s 2024 expected earnings growth rate is pegged at 11.9%. The Zacks Consensus Estimate for Elevance Health’s 2024 revenues indicates a year-over-year rise of 1.8%.
Price and Consensus: ELV
Cencora: Chesterbrook, PA-based Cencora is one of the world’s largest pharmaceutical services companies, which focuses on providing drug distribution and related services to reduce healthcare costs and improve patient outcomes. The company was previously known as AmerisourceBergen Drug Corporation. Cencora is expected to benefit from growth of generics in the long run. Strong organic growth rates in the U.S. pharmaceutical market, improving patient access to care, improved economic conditions and population demographics, introduction of innovative drugs like hepatitis C drugs, and a continued good brand pricing environment should drive growth.
Cencora’s fiscal 2024 earnings growth rate is pegged at 10%. The Zacks Consensus Estimate for Cencora’s fiscal 2024 revenues indicates a year-over-year expected rise of 9.7%.
Price and Consensus: COR
HealthEquity: Draper, UT-headquartered HealthEquity provides integrated solutions for health-care account management, health reimbursement arrangement and flexible spending accounts for health plans, insurance companies and third-party administrators in the United States. HealthEquity offers multiple cloud-based platforms, which are accessed by its members online via a desktop or mobile device. Individuals can make health-saving and spending decisions and pay healthcare bills, among other activities, via these platforms.
HealthEquity’s fiscal 2025 expected earnings growth rate is pegged at 29.7%. The Zacks Consensus Estimate for HQY’s fiscal 2025 revenues indicates a year-over-year rise of 15.8%.
Price and Consensus: HQY