In a bid to fortify its Dental business, Henry Schein, Inc. (HSIC - Free Report) recently formed a joint venture with Internet Brands. Notably, Internet Brands is a provider of web presence and online marketing software for dental offices. Subject to certain customary closing conditions, the transaction is expected to be completed by the second quarter of 2018. However, the financial terms of the deal were kept under wraps.
Henry Schein plans to integrate the portfolio of practice management systems under its dental practice management software company — Henry Schein Practice Solutions -- with Internet Brands’ web-based software applications to enhance dental practice management and marketing as well as improvise patient communication.
Joint Venture in Detail
The companies will name the joint venture Henry Schein One. Notably, in comparison with Internet Brands, Henry Schein will hold majority ownership of the joint venture.
Excluding the impact of one-time transfer taxes of around $4.5 million, Henry Schein anticipates the deal to be immaterial to the rest of 2018 earnings per share and accretive thereafter. Furthermore, between $20 million and $30 million in annual synergies are expected to be realized by the end of the third year of the joint venture initiation.
Dental Business — A Major Growth Driver
Henry Schein’s Dental business contributed to 50.6% of total revenues in the last reported quarter. Accordingly, it has been leaving no stones unturned to strengthen its hold in this business. In this regard, last year, Henry Schein signed distribution agreements with DENTSPLY SIRONA Inc. (XRAY - Free Report) to distribute the latter’s entire product line.
We encouragingly note that Henry Schein banks on a part of its strategic plan, digital dentistry. The company is busy promoting digital workflows for general dentistry as well as dental specialties. Per management, the solid performance can be attributed to its continued focus on offering a diversified portfolio and value-added services along with favorable end market. Thus, we believe that the company’s latest tie-up is a strategic one.
Per the company, in the dental industry, a rise in oral healthcare expenditures is predicted as population, ageing 45 years and above, increases. Moreover, Henry Schein is upbeat about the expected increase in dental insurance coverage, along with lower insurance reimbursement rates, leading to a rising need for new technologies. We believe, this will boost demand for Henry Schein’s products and services.
Moreover, per a report by Transparency Market Research, global dental practice management software market is expected to see a CAGR of 11% between 2017 and 2025. Considering the huge potential of the market, we believe that the latest development is strategic and will help Henry Schein to cash in on the bountiful opportunities in the market.
Share Price Movement
Over the past six months, Henry Schein has been underperforming the broader industry. The stock lost 16.4% in contrast to the industry’s gain of 1.9%, We believe this latest development will help boost investors’ confidence on the stock and reverse the downtrend.
Zacks Rank & Key Picks
Henry Schein currently carries a Zacks Rank #3 (Hold).
A few better-ranked stocks in the broader medical sector are Bio-Rad Laboratories (BIO - Free Report) and Align Technology, Inc. (ALGN - Free Report) .
Bio-Rad Laboratories sports a Zacks Rank of 1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here. It has long-term expected earnings growth rate of 20%.
Align Technology has long-term expected earnings growth rate of 29.2%. The stock carries a Zacks Rank of 2 (Buy).
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