Henry Schein, Inc.
HSIC
is well positioned to gain from its extensive global foothold and diverse channel mix. However, escalating costs and expenses are putting pressure on the bottom line. Henry Schein currently carries a Zacks Rank #3 (Hold).
Over the past six months, Henry Schein has outperformed the
industry
. The stock has risen13.8% compared with the industry’s 6.9% rise.
Henry Schein exited the second quarter of 2021 on an extremely bullish note with better-than-expected results despite coronavirus outbreak adversities. The company saw robust performances by all three of its operating businesses. The company’s international performance was also impressive. Strengthening demand in the global dental and medical markets drove strong year-over-year increases in sales in the reported quarter. The company registered strong equipment growth in international markets with no significant delay from the manufacturers’ side. Overall dental sales reflect a continued recovery in patient traffic compared to the pre-pandemic levels. Expansion of both margins bodes well.
Widespread network and channel mix along with favorable long-term trends in the dental business also look encouraging. A strong solvency position is an added positive.
Henry Schein’s distribution business boasts a wide global footprint with 61 distribution centers. Apart from North America and Europe, the company has a presence in Australia and New Zealand as well as in emerging nations like China, Brazil, Israel, Czech Republic and Poland. We believe Henry Schein’s worldwide reach lends it a major competitive advantage over other players in the healthcare distribution industry.
During the second quarter, Henry Schein noted improved patient traffic despite a rise in new COVID cases. The most recent American Dental Association data shows current patient traffic at 88% of the pre-pandemic level. Henry Schein One billings associated with dental claims processing were above the pre-pandemic level, which are driving greater practice purchases. Global dental consumable merchandise internal sales increased 90.5% year over year in the second quarter with solid dental consumable merchandise sales growth in the United States, Canada, Australia, New Zealand, Brazil and Asia.
In Europe, the company witnessed strength in dental consumable merchandise sales in France, Germany, Austria, Belgium, The Netherlands, Italy, Poland, and the U.K. North American dental internal sales growth in local currencies was 105% compared with the prior-year figure.
Henry Schein also registered strong internal sales growth in local currencies in traditional equipment and high-tech equipment in the international market.
However, continued pandemic-led challenges faced by the end markets in most geographies are concerning. The company’s inability to provide a detailed financial guidance raises apprehensions.
Further, the healthcare industry has been facing numerous headwinds such as measures to curb capital expenditure, volume headwind, pricing pressure and procedure deferrals among others. Due to these, some large integrated health care providers and GPOs have gained considerable purchasing power. The GPOs act as agents that negotiate vendor contracts on behalf of their members. Moreover, the ongoing economic climate has bolstered the bargaining power of GPOs. The GPOs have also increased pricing pressure in the industry. This is acting as a major concern for Henry Schein’s overall business.
Additionally, governments and insurance companies continue to look for ways to contain the rising cost of healthcare, which is affecting Henry Schein’s financial operations. Weak solvency and capital structure are also deterring. Other factors like the impact of group purchasing organizations and a stiff competitive landscape are bothersome.
Key Stocks
A few better-ranked stocks from the broader medical space are
Alcon Inc
ALC
,
McKesson Corporation
MCK
and
Biolase, Inc.
BIOL
, each carrying a Zacks Rank #2 (Buy). You can see
the complete list of Zacks #1 Rank (Strong Buy) stocks here.
Alcon has an estimated long-term earnings growth rate of 18%.
McKesson has an estimated long-term earnings growth rate of 8%.
Biolase has a projected long-term earnings growth rate of 15%.
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