Henry Schein HSIC 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
The growth in the healthcare distribution industry is a positive sign for Henry Schein’s business, indicating growing awareness of the benefits of preventative care and oral hygiene. The company’s worldwide reach offers it a major competitive advantage over other players in the industry. In the third quarter of 2024, Henry Schein opened an 811K-square-foot Southwestern Distribution Center in Fort Worth, TX, the largest single building in the company’s global network.
Following last year's cyber incident, the dental equipment business is showing stability in North America and increased investments by customers across Europe, Australia and New Zealand. In the third quarter of 2024, practice management software and revenue cycle management products posted mid-single-digit growth within the company's Technology and Value-Added services. In line with this, growth in North America was primarily driven by Dentrix-Ascend practice management businesses, while international growth was propelled by the Dental cloud-based solution. Going by our model, the company is projected to report 2.8% growth in 2024 within the International Healthcare Distribution business.
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. During the third quarter, Henry Schein acquired 100% of abc dental AG to expand in Switzerland. Additionally, in September, the company entered into an agreement with the Swiss company, vVARDIS, to serve as the exclusive distributor of the latter’s drill-free Curodont Repair Fluoride Plus product to larger dental service organizations (DSOs) in the United States.
Earlier this year, Henry Schein completed the acquisition of orthopedic player TriMed. With the integration of TriMed’s business, the company is now able to provide a wide range of surgical solutions to the existing Integrated Delivery Networks and Ambulatory Surgery Center customers.
Henry Schein, Inc. Price
Henry Schein, Inc. Price
Henry Schein, Inc. price | Henry Schein, Inc. Quote
Further, Henry Schein seems upbeat about its dental technology joint venture (JV), Henry Schein One. The dental software business has been progressing well, driving robust gains across its core products, including practice management software, revenue cycle management, analytics and AI solutions.
During the third quarter, Henry Schein One made several developments, including the announcement of the availability of a new cybersecurity solution, Adlumin Managed Detection and Response (MDR), to help dental organizations better protect their businesses and sensitive healthcare data against growing cyber threats. Also, it introduced Eligibility Essentials and Eligibility Pro, two powerful tools designed to simplify the insurance eligibility process for dental practices. It is available for Dentrix and Dentrix Ascend. Together, these developments should enable practices to attract patients and gain invaluable insights for refining patient management strategies and driving growth.
The stock has dropped 1.9% in the past three months against the industry’s 2.9% gain. With the company strategically expanding its distribution business globally, as well as growing through new acquisitions and partnerships, we expect the stock to regain its momentum in the coming days.
Factors That Are Concerning 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 sustained macroeconomic pressure, the company may struggle to keep in check its cost of revenues and operating expenses. During the second quarter, changes in French legislation limiting DSOs negatively impacted equipment investment in France. During the third quarter, Henry Schein’s cost of sales increased 0.6%, for which the gross margin contracted 18 bps. Additionally, adjusted operating profit was down 0.4% from the year-ago level. For 2024, our model projects a 4.5% rise in the company’s GAAP SG&A expenses.
Further, 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. Henry Schein operates in a highly competitive medical product distribution market with larger players like McKesson Corp. The presence of specialized players like Quality Systems, eClinicalWorks and Athenahealth in the electronic medical records market puts Henry Schein in a tight spot. The competitive landscape in the overseas market is also tough. The tussle for market share might be a drag on results.
Key Picks
A few better-ranked stocks in the broader medical space are Veracyte VCYT, Haemonetics HAE and Phibro Animal Health PAHC.
Veracyte has an estimated 2024 earnings growth rate of 37.2% compared with the industry’s 15.3%. Veracyte’s earnings surpassed the Zacks Consensus Estimate in each of the trailing four quarters, the average surprise being 520.6%. Its shares have risen 44.5% compared with the industry’s 3.6% growth in the past year. VCYT sports a Zacks Rank #1 (Strong Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
Haemonetics, carrying a Zacks Rank #2 at present, has an estimated growth rate of 15.9% for fiscal 2025 earnings compared with the industry’s 12.3%. Shares of the company have fallen 8.3% against the industry’s 9.7% growth. HAE’s earnings surpassed estimates in three of the trailing four quarters and missed on one occasion, the average surprise being 2.82%.
Phibro Animal Health, carrying a Zacks Rank #2 at present, has an estimated earnings growth rate of 35.3% for fiscal 2025 compared with the industry’s 11.1%. Shares of the company have risen 77.6% compared with the industry’s 9.8% growth over the past year. PAHC’s earnings surpassed estimates in each of the trailing four quarters, the average surprise being 25.47%.
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