Inelastic demand and rising investments in R&D over the years to develop efficient diagnostic devices, viable drugs, and advanced therapies for treating rare and chronic diseases have significantly benefited the healthcare sector. The strong demand has also allowed healthcare distributors to play a significant role and to grow.
Furthermore, the adoption of blockchain, AI, and IoT in the medical supply chain process to ease operations and enhance transparency in the distribution process makes the medical distribution industry’s growth prospects bright. The global healthcare distribution market is expected to grow at a 7% CAGR to $1.39 trillion by 2028.
Therefore, we believe fundamentally sound and undervalued medical distributor stocks Cardinal Health, Inc. (CAH), AmerisourceBergen Corporation (ABC), McKesson Corporation (MCK), and Henry Schein, Inc. (HSIC) could be solid additions to one’s portfolio now.
Click here to check out our Software Industry Report for 2022
Cardinal Health, Inc. (CAH)
CAH in Dublin, Ohio, is an integrated healthcare service and products company operating internationally. The company provides customized solutions for hospitals, healthcare systems, pharmacies, ambulatory surgery centers, clinical laboratories, physician offices, and patients in the home.
On March 30, 2022, CAH announced plans to build a medical distribution center in the Columbus, Ohio area. Replacing its current facility in nearby Obetz, Ohio, the new and larger facility is part of its multi-year strategy to increase U.S. warehouse capacity with expanded inventory space. It will integrate automation and technology to improve safety, service, and quality, deliver operational efficiencies, and better support fluctuations in volume and labor to offer a stable customer experience.
For its fiscal 2022 second quarter ended December 31, 2021, CAH’s revenues increased 9.4% year-over-year to $45.46 billion. As of December 31, 2021, the company had $3.16 billion in cash and equivalents.
Analysts expect the company’s revenue to reach $177.66 billion for fiscal 2022, ending June 30, 2022, representing a 9.4% rise from the prior-year period. CAH’s EPS is expected to grow at a 4.3% rate per annum over the next five years.
The stock’s 0.11x forward EV/Sales is 97.2% lower than the 3.91x industry average. In terms of forward Price/Sales, CAH is currently trading at 0.10x, which is 98.1% lower than the 4.97x industry average. Over the past three months, the stock has gained 20.7% and closed yesterday’s trading session at $61.24.
It is no surprise that CAH has an overall A rating, which translates to Strong Buy in our POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
The stock has an A grade for Growth and a B grade for Value. Click here to see the additional ratings for CAH’s Momentum, Quality, Sentiment, and Stability.
CAH is ranked #8 of 83 stocks in the Medical - Services industry.
AmerisourceBergen Corporation (ABC)
ABC in Kearney, N.J., sources and distributes pharmaceutical products internationally. The company offers brand generic pharmaceuticals, over-the-counter healthcare products, home healthcare supplies and equipment, and related services to healthcare providers.
On April 21, 2022, ABC announced its partnership with Chronicled, the custodian of the blockchain-powered MediLedger Network within the life sciences industry, to leverage a new blockchain-powered solution for streamlining and optimizing the complex process of pharmaceutical chargebacks while creating greater connectivity for its suppliers and customers. Chronicled’s blockchain-powered solution effectively enforces the accuracy and integrity of chargebacks submitted across ABC’s pharmaceutical supply chain.
For its fiscal 2022 first quarter ended December 31, 2021, ABC’s revenue increased 13.5% year-over-year to $59.63 billion. The company’s non-GAAP gross profit came in at $2.02 billion, representing a 41.3% rise from the year-ago period. Its non-GAAP operating income came in at $749.15 million, up 21.4% from the prior-year period. ABC’s non-GAAP net income came in at $545.39 million, indicating a 21% year-over-year improvement. Its non-GAAP EPS increased 18.4% year-over-year to $2.58. ABC had cash and cash equivalents of $3.17 billion as of December 31, 2021.
Analysts expect ABC’s EPS to improve 5.7% year-over-year to $10.79 in fiscal 2022 ending September 30, 2022. The company surpassed Street EPS estimates in each of the trailing four quarters, which is impressive. The consensus revenue estimate of $237.19 billion for the same fiscal year indicates a 10.8% year-over-year improvement. ABC’s EPS is expected to grow at a rate of 10.7% per annum over the next five years.
The stock has a 0.16x forward EV/Sales, 95.9% lower than the 3.91x industry average. In terms of forward Price/Sales, ABC is currently trading at 0.14x, 97.2% lower than the 4.97x industry average. Over the past three months, the stock has gained 20.9% and ended yesterday’s trading session at $158.47.
ABC’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, which equates to Buy in our proprietary rating system.
It has a B grade for Growth, Value, and Stability. Click here to see the additional ratings for ABC (Sentiment, Quality, and Momentum).
ABC is ranked #14 in the Medical - Services industry.
McKesson Corporation (MCK)
MCK provides healthcare supply chain management, retail pharmacy, community oncology, specialty care, and healthcare information solutions internationally. The Irving, Tex.-based company partners with payers, hospitals, physician offices, pharmacies, pharmaceutical companies, and others across the spectrum of care to build healthier organizations that deliver better care to patients.
On March 14, 2022, CTI BioPharma Corp. (CTIC), a biopharmaceutical company focused on developing novel targeted therapies for blood-related cancers, selected MCK’s Biologics by McKesson, an independent specialty pharmacy specializing in oncology and rare diseases, as a specialty pharmacy provider for VONJOTM for the treatment of intermediate or high-risk primary or secondary myelofibrosis. MCK will be able to provide this new treatment option to patients and witness an expanding customer base in the coming months.
For its fiscal 2022 third quarter ended December 31, 2021, MCK’s revenues increased 9.6% year-over-year to $68.61 billion. The company’s non-GAAP gross profit came in at $3.40 billion, up 8.2% from the prior-year period. Its non-GAAP income from continuing operations came in at $1.27 billion, representing a 19.4% rise from its prior-year value. MCK’s non-GAAP net earnings came in at $944 million for the quarter, indicating a 27.4% rise from the prior-year period. Its non-GAAP EPS increased 33.7% year-over-year to $6.15. The company had $2.75 billion in cash and equivalents as of December 31, 2021.
Analysts expect the company’s EPS to grow 38.8% from the prior-year period to $23.89 for its fiscal year 2022 ended March 31, 2022. It surpassed the Street EPS estimates in each of the trailing four quarters. The consensus revenue estimate of $261.06 billion for the same fiscal year indicates a 9.6% year-over-year improvement. The company’s EPS is expected to grow at a 13.1% rate per annum over the next five years.
MCK’s 0.20x forward EV/Sales is 94.8% lower than the 3.91x industry average. In terms of forward Price/Sales, the stock is currently trading at 0.18x, which is 96.4% lower than the 4.97x industry average. Over the past three months, the stock has gained 29.2% and closed yesterday’s trading session at $317.31.
MCK’s POWR Ratings reflect its solid prospects. It has an overall rating of A, which equates to Strong Buy in our proprietary rating system.
The stock has a B grade for Growth, Value, and Stability. In addition to the POWR Ratings grades we have just highlighted, one can see the ratings for MCK’s Momentum, Quality, and Sentiment, here.
MCK is ranked #6 in the Medical - Services industry.
Henry Schein, Inc. (HSIC)
HSIC in Melville, N.Y., provides health care products and services to dental practitioners and laboratories, physician practices, government, institutional health care clinics, and other alternate care clinics worldwide. The company operates through three groups ─ Dental; Healthcare Distribution; and Technology and Value-Added Services. Its value-added practice solutions include financial services on a non-recourse basis, e-services, practice technology, and network and hardware services.
On March 1, 2022, HSIC announced the availability of a new version of its market-leading dental analytics platform for dental service organizations (DSOs), Jarvis Analytics for Private Practices. Jarvis Analytics extends the powerful tools of its DSO version that will help dental teams maximize data and automate practice workflows to make more informed, strategic decisions that can impact operational success. This should help HSIC gain more demand from DSOs in the coming months.
For its fiscal 2021 fourth quarter ended December 25, 2021, HSIC’s net sales increased 5.2% year-over-year to $3.33 billion. The company’s gross profit came in at $979.50 million, representing a 13.9% rise from the prior-year period. Its operating income came in at $200.56 million for the quarter, up 10.7% from the year-ago period. While its non-GAAP net income increased 4.9% year-over-year to $150.67 million, its non-GAAP EPS grew 7% to $1.07. As of December 25, 2021, the company had $117.97 million in cash and cash equivalents.
Analysts expect the company’s EPS to reach $4.87 for fiscal 2022 ending December 31, 2022, representing a 7.7% rise from the prior-year period. It surpassed the consensus EPS estimates in each of the trailing four quarters. The consensus revenue estimate of $13.17 billion for the same fiscal year indicates a 6.2% rise from the prior-year period. HSIC’s EPS is expected to grow at a rate of 18.6% per annum over the next five years.
The stock’s 1.10x forward EV/Sales is 72% lower than the 3.91x industry average. In terms of forward Price/Sales, HSIC is currently trading at 0.92x, 81.4% lower than the 4.97x industry average. The stock has gained 21% over the past three months and ended yesterday’s trading session at $87.99.
HSIC’s POWR Ratings reflect this promising outlook. It has an overall rating of B, which equates to Buy in our proprietary rating system.
The stock has a B grade for Value. Click here to see the additional ratings for HSIC (Growth, Sentiment, Stability, Momentum, and Quality).
HSIC is ranked #19 of 158 stocks in the Medical - Devices & Equipment industry.
Click here to check out our Software Industry Report for 2022
CAH shares were trading at $60.63 per share on Tuesday afternoon, down $0.61 (-1.00%). Year-to-date, CAH has gained 18.76%, versus a -12.12% rise in the benchmark S&P 500 index during the same period.
About the Author: Sweta Vijayan
Sweta is an investment analyst and journalist with a special interest in finding market inefficiencies. She’s passionate about educating investors, so that they may find success in the stock market.
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