Henry Schein HSIC has been progressing well with product portfolio expansion and acquisitions. However, tough competition and macroeconomic uncertainty are likely to offset the positives to some extent.
In the past year, the company’s shares have outperformed the industry. The stock has rallied 6.8% against the industry’s 8.6% decline.
This $8.68-billion distributor of dental equipments’ earnings are expected to grow 7.8% in the next five years. Also, the company has a trailing-four quarter positive earnings surprise of 4.4%, on average.
Let’s delve into the factors that substantiate the company’s Zacks Rank #3 (Hold).
Henry Schein One Holds Potential: Henry Schein seems to be upbeat about its dental technology business, Henry Schein One. During the fourth quarter, the company introduced the beta version of its Tech Dentrix to streamline collection procedures, curb mailing costs and boost cash flow. The company also launched Dentrix G7.3 to improve insurance payment procedures and a chairside dashboard for Dentrix Ascend in the Symbian cloud-based system, which delivers enhanced clinical patient outcomes for the dentists. These product launches are expected to continue driving the company over the long haul.
Expansion Via Acquisitions: Henry Schein’s revenue growth has been consistently supported by niche acquisitions. During the fourth quarter, Medical sales growth continued to be driven by solid contribution from the recently-closed acquisition of North American Rescue. The company also continued benefitting from the acquisitions of Cliniclands and Elite Computer Italia. All these are expected to continue strengthening the company’s dental implant space in international markets.
Strong Guidance: The company’s adjusted earnings of $3.65 to $3.75 suggests 4-7% growth from that reported in 2019. This indicates the continuation of the bullish trend through the rest of the year.
However, there are a few downsides marring growth of the company.
Contagion of Economic Problems: The current global macroeconomic environment has affected Henry Schein’s financial operations. Governments and insurance companies continue to look for ways to contain the rising cost of healthcare. This might build pressure on players in the healthcare industry, with Henry Schein being no exception.
Tough Competition: The U.S. healthcare products and service distribution industry is highly competitive and consists principally of national, regional and local distributors. In the North American dental products market, the company faces stiff competition from Patterson Dental business of Patterson Companies Inc. and Benco Dental Supply. The competition in the fast-growing animal health market is also fierce with Patterson Veterinary Supply under Patterson Companies and IDEXX Laboratories gaining traction.
The company is witnessing a positive earnings estimate revision trend for the first quarter of 2020. Over the past 30 days, the Zacks Consensus Estimate for its earnings per share has inched up 1.1% to 88 cents.
The consensus estimate for the company’s first-quarter 2020 revenues is pegged at $2.47 billion, suggesting a 4.7% rise from the year-ago number.
Some better-ranked stocks from the broader medical space are ResMed Inc. RMD, Medtronic plc MDT and Hill-Rom Holdings, Inc. HRC.
ResMed has a projected long-term earnings growth rate of 12%. It currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Medtronic’s long-term earnings growth rate is estimated at 7.4%. The company presently carries a Zacks Rank #2.
Hill-Rom’s long-term earnings growth rate is estimated at 11.1%. It currently carries a Zacks Rank #2.
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