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Henry Schein Stock Gains From Dental Business Expansion Amid Macro Woe

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Henry Schein (HSIC - Free Report) is well positioned to gain from its extensive global foothold and diverse channel mix. Yet, global economic uncertainties are concerns for Henry Schein. The stock carries a Zacks Rank #3 (Hold) currently.

Factors Driving HSIC Stock

Henry Schein’s revenue growth has been consistently supported by niche acquisitions and partnerships. Its robust acquisition strategy helps it to pursue targets that provide access to additional product lines. In July, Henry Schein acquired 100% of ABC Dental AG to expand in Switzerland. During the second quarter, Henry Schein completed the acquisition of orthopedic player TriMed. With the integration of TriMed’s business, the company is able to provide a wide range of surgical solutions to the existing Integrated Delivery Networks and Ambulatory Surgery Center customers.

Henry Schein strategically sets up distribution centers worldwide to better serve customers and increase its operating efficiency. Apart from North America, the company has a presence in Australia and New Zealand as well as in emerging nations like China, Brazil, Israel, the Czech Republic and Poland.

The growth in the healthcare distribution industry is a positive sign for their business, indicating growing awareness of the benefits of preventative care and oral hygiene. We believe Henry Schein’s worldwide reach is a major competitive advantage over other players in the industry. Going by our model, the company is projected to report 7% growth in its International Healthcare Distribution business for 2024.

Further, the global dental service market was valued at $433.2 billion in 2022 and is projected to witness a 4.5% CAGR through 2030, according to Grand View Research. As dentistry shifts toward integrating high-tech digital workflow systems, Henry Schein’s efforts to expand digital dentistry globally are encouraging. The company is aiming to deliver customized solutions leveraging market insights and technological advancements.

Apart from this, it sells its own cost-effective consumable merchandise products and manufactures certain dental specialty products in the areas of implants, orthodontics and endodontics. Of late, the company has been witnessing consistent demand for these implant systems and endodontic products and integrated software and services solutions. Further, Henry Schein is organically gaining shares in the Global Dental specialties market, with acquisitions leading to significant growth across oral surgical, endodontics and orthodontics product lines.

The stock has risen 1.9% in the past three months against the industry’s 1.1% decline. With the company strategically expanding its distribution business globally as well as growing through new acquisitions and partnerships, we expect the stock to continue its upward movement in the coming days.

Concerns for HSIC

The current macroeconomic environment across the globe is affecting Henry Schein’s financial operations. Particularly, exchange rate fluctuations, inflation and recession are adversely impacting the company’s operational results. Accordingly, governments and insurance companies continue to look for ways to contain the rising cost of healthcare. With the sustained macroeconomic pressures, the company may struggle to keep in check its cost of revenues and operating expenses.

During the second quarter, changes in legislation in France limited DSOs, which negatively impacted equipment investment in the country.  Henry Schein’s selling, general & administrative expenses rose 10.5% from the prior-year quarter’s figure. The rise in operating costs was due to the recent acquisitions and lower sales at the distribution businesses. For 2024, our model projects a 4.5% rise in the company’s GAAP SG&A expenses.

In October 2023, Henry Schein experienced a cybersecurity incident that mainly affected the operations of its North American and European dental and medical distribution businesses. The company took precautionary action, including taking certain systems offline and other steps intended to contain the incident, which led to the temporary disruption of some of its business operations. The company’s fourth-quarter sales declined by an estimated $350 million-$400 million globally, with the cybersecurity incident affecting operating income by nearly $120 million-$130 million. Henry Schein continued to experience a residual impact of the cyber events relating primarily to decreased sales to episodic customers (customers that generally had a less consistent demand), resulting in a 2.4% decrease in internally generated local currency sales in the second quarter.

The healthcare industry, in particular, has been targeted by threat actors seeking to undermine companies’ cybersecurity defensive measures. The evolving nature of these attacks makes it difficult to guarantee the effectiveness of the cybersecurity measures. As a consequence, substantial costs may be incurred to update defenses and adapt to new challenges, with additional costs arising from regulatory actions. We worry that if the company is subject to more attacks following last year’s incident, it could materially affect its business results. 

Key Picks

Some better-ranked stocks in the broader medical space are Boston Scientific (BSX - Free Report) , DaVita (DVA - Free Report) and Masimo (MASI - Free Report) , each carrying a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Boston Scientific’s shares have gained 70.4% in the past year. Estimates for the company’s earnings per share (EPS) have remained constant at $2.40 in 2024 and $2.71 in 2025 in the past 30 days. BSX’s earnings beat estimates in each of the trailing four quarters, delivering an average beat of 7.2%. In the last reported quarter, it posted an earnings surprise of 6.9%.

Estimates for DaVita’s 2024 EPS have remained constant at $9.99 in the past 30 days. Shares of the company have surged 103.3% in the past year compared with the industry’s growth of 39.2%. DVA’s earnings surpassed estimates in each of the trailing four quarters, with the average beat being 24.2%. In the last reported quarter, it delivered an earnings surprise of 4.9%.

Estimates for Masimo’s 2024 EPS have risen 0.3% in the past 30 days. Shares of the company have surged 80.4% in the past year compared with the industry’s 26.2% growth. MASI’s earnings surpassed estimates in each of the trailing four quarters, with the average beat being 4.1%. In the last reported quarter, it delivered an earnings surprise of 11.7%.

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