Henry Schein (HSIC) Rides On Global Growth, Strategic Deals

On May 25 2017, we issued an updated research report on Melville, NY-based Henry Schein, Inc. (NASDAQ:HSIC) . It is a leading distributor of health care products and services across the globe. The company currently carries a Zacks Rank #2 (Buy).

Having delivered better-than-expected first-quarter 2017 performance a month back, Henry Schein has consistently outperformed the S&P 500 market at large with respect to share price movement. The stock is up 4.88%, significantly above the 0.96% gain of the market.

We expect this bullish trend to continue in the ongoing quarter as well. Per last reported quarter, the company has delivered strong year-over-year growth in all of its four operating segments. Also Henry Schein’s strong share gains in both North American and overseas markets along with solid revenues, further raise investors’ optimism on the stock.

We are also encouraged by Henry Schein’s growing distribution business, boasting a wide global footprint with 61 distribution centers. Apart from North America and Europe, it has presence in Australia and New Zealand as well as in the emerging nations like China, Brazil, Israel, Czech Republic and Poland being the latest.

In 2016, the company completed its majority buyout of the Poland-based Dental Cremer. Its decision to acquire an 80% ownership of a Poland-based dental distributor of Marrodent will also help it fortify its position in the emerging dental markets.

Also, Henry Schein might gain from several trends in its end markets, one of them being customer demographics. According to a recent estimation, between 2015-2025, the population aged 45 and above will likely grow approximately 12%. This demographic trend is expected to boost the utilization of dental and medical products distributed by the company.

However a comparative study of Henry Schein’s forward P/E (F12M basis) multiple reflects that the stock is quite overvalued. The multiple currently stands at 23.9, stretched when compared to its own range (median of 23.4). Even when compared to the Zacks categorized Medical/Dental Supplies industry, the comparison is unfavorable as the current P/E (F12M basis) for the industry is 18.3 for the last one month.

It is also overvalued when compared with the S&P 500 market of P/E (F12M basis) multiple of 18.2. We believe the company’s recent developments including several acquisitions and tie-ups will keep the valuation stretched for sometime.

This apart, escalating costs and expenses continue to be a drag on the company’s margins and put pressure on the bottom line. A tough competitive landscape and pricing pressure also weigh on Henry Schein’s stock.

Key Picks

Some other well-ranked stocks in the broader medical sector are Luminex Corp. (NASDAQ:LMNX) , Inogen, Inc. (NASDAQ:INGN) and Edwards Lifesciences Corp. (NYSE:EW) . Notably, Luminex and Inogen sport a Zacks Rank #1 (Strong Buy), while Edwards Lifesciences carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Luminex has an expected long-term adjusted earnings growth of almost 16.3%. The stock added roughly 6.8% over the last three months.

Inogen has long-term expected earnings growth rate of 17.5%. The stock has a solid one-year return of around 81.7%.

Edwards Lifesciences has an expected long-term adjusted earnings growth of almost 15.6%. The stock roughly added 14.8% over last year.

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