The AI revolution in healthcare is transforming the industry with cutting-edge diagnostics, personalized treatments based on genetic insights, and enhanced operational efficiency. Against this dynamic backdrop, it could be wise to buy top medical stocks such as UnitedHealth Group Incorporated (UNH), Medtronic plc (MDT), and Veeva Systems Inc. (VEEV) to capitalize on the AI revolution in healthcare.
In recent years, advances in AI and sophisticated medical technology have significantly fueled growth in the healthcare sector. By addressing increasing medical needs and integrating cloud-based services, AI has created a strong investment opportunity in healthcare. The global AI in healthcare market, valued at $29.20 billion in 2024, is expected to grow to $508.70 billion by 2034, with a CAGR of 36.9%.
Meanwhile, healthcare expenses have been increasing annually, and this trend is expected to continue, making health insurance increasingly vital. The global health insurance market is projected to reach $2.38 trillion this year. Notably, health expenditures remain a priority across economic cycles, enabling health insurance companies to enhance their profit margins.
Furthermore, with the aging population, rising infectious diseases, and increasing chronic conditions, advancements in technologies such as pulsed-field ablation, diabetes care, surgical robotics, and AI integration are further driving market growth and optimism. The U.S. medical devices market is expected to expand from $188.68 billion in 2024 to $314.96 billion by 2032, reflecting a CAGR of 6.6%.
Considering these conducive trends, let’s analyze the fundamentals of the three healthcare picks mentioned above.
UnitedHealth Group Incorporated (UNH)
UNH operates as a diversified healthcare company in the United States. The company operates through four segments: UnitedHealthcare, Optum Health, Optum Insight, and OptumRx.
On August 13, 2024, UNH announced it has been selected to continue serving Florida Medicaid members through 2030 across 30 counties. The company will provide a range of healthcare services in collaboration with the Florida Agency for Health Care Administration (AHCA).
In terms of the trailing-12-month EBITDA margin, UNH’s 9.03% is 55.7% higher than the 5.80% industry average. Likewise, its 1.36x trailing-12-month asset turnover ratio is 229.5% higher than the 0.41x industry average. Its 8.31% trailing-12-month EBIT margin is 266.4% higher than the 2.27% industry average.
During the second quarter that ended June 30, 2024, UNH’s total revenues increased 6.4% year-over-year to $98.86 billion. The company’s earnings from operations came in at $7.88 billion. Moreover, its adjusted net earnings attributable to UNH common shareholders came in at $6.31 billion and $6.80 per share, up 9.3% and 10.7% from the previous year’s quarter, respectively.
Street expects UNH’s EPS and revenue for the quarter ending September 30, 2024, to increase 7.8% and 7.5% year-over-year to $7.07 and $99.28 billion, respectively. It surpassed Street EPS estimates in each of the trailing four quarters. Over the past year, the stock has gained 20.1% to close the last trading session at $587.35.
UNH’s POWR Ratings reflect strong prospects. It has an overall rating of B, translating to a Buy in our proprietary system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It is ranked #5 out of 10 stocks in the A-rated Medical - Health Insurance industry. It has a B grade for Stability and Sentiment. Click here to see UNH’s ratings for Growth, Value, Momentum, and Quality.
Medtronic plc (MDT)
Headquartered in Dublin, Ireland, Medtronic plc develops, manufactures, and sells device-based medical therapies to healthcare systems, physicians, clinicians, and patients worldwide. It operates through four segments: Cardiovascular Portfolio, Neuroscience Portfolio, Medical Surgical Portfolio, and The Diabetes Operating Unit segment.
On August 7, 2024, MDT announced FDA approval for its Simplera CGM and a global partnership with Abbott to expand continuous glucose monitoring options for diabetes management.
On June 21, 2024, MDT announced that new data demonstrates the MiniMed 780G system's ability to significantly reduce early morning hyperglycemia and nighttime burdens for people with type 1 diabetes. The system’s advanced algorithm improves glucose management and enhances overnight sleep quality.
In terms of the trailing-12-month levered FCF margin, MDT’s 15.21% is significantly higher than the 1.27% industry average. Its 5.38% trailing-12-month net income margin is 63.9% higher than the 3.28% industry average. Similarly, the stock’s 19.82% trailing-12-month EBIT margin is 774.2% higher than the 2.27% industry average.
MDT’s net sales for its first quarter ended July 26, 2024, increased 2.8% from the prior-year period to $7.92 billion. The company’s non-GAAP operating profit grew 2.3% over the prior-year quarter to $1.95 billion. In addition, its attributable net income rose 31.7% from the year-ago value to $1.04 billion, and its non-GAAP EPS stood at $1.23, up 2.5% year-over-year.
For the quarter ending October 31, 2024, MDT’s revenue is expected to increase 3.6% year-over-year to $8.27 billion. Its EPS for the quarter ending January 31, 2025, is expected to grow 5.6% year-over-year to $1.37. It surpassed the consensus EPS estimates in each of the trailing four quarters. Over the past month, the stock has gained 12.8% to close the last trading session at $88.80.
MDT’s positive outlook is reflected in its POWR Ratings. It has an overall rating of B, equating to a Buy in our proprietary rating system.
It has a B grade for Growth and Stability. It is ranked #18 out of 134 stocks in the Medical - Devices & Equipment industry. To access additional grades for MDT’s Value, Momentum, Sentiment, and Quality ratings, click here.
Veeva Systems Inc. (VEEV)
VEEV provides cloud-based software for the life sciences industry. It offers Veeva Commercial Cloud, Veeva Vault PromoMats, Veeva Vault Medical, Veeva Crossix, Veeva OpenData, Veeva Link, and Veeva Compass.
On August 27, 2024, VEEV announced the launch of the Veeva Vault CRM Service Center, unifying sales, service, and customer engagement for life sciences inside sales, contact centers, and hybrid reps. The Service Center is part of the Veeva Vault CRM Suite, enabling a streamlined, customer-centric approach by integrating sales, marketing, medical, and service functions.
On June 19, 2024, VEEV announced a partnership with Vita Global Sciences to modernize clinical data management using Veeva Vault EDC, aiming to enhance study efficiency and improve collaboration with trial stakeholders.
In terms of the trailing-12-month levered FCF margin, VEEV’s 42.54% is significantly higher than the 1.27% industry average. Likewise, its 72.48% trailing-12-month gross profit margin is 26.2% higher than the 57.46% industry average. Moreover, its 22.57% trailing-12-month EBITDA margin is 288.9% higher than the 5.80% industry average.
In the first quarter that ended April 30, 2024, VEEV’s total revenues rose 23.6% year-over-year to $650.35 million. For the same quarter, the company’s non-GAAP operating income rose 66.2% over the prior-year quarter to $260.87 million. Also, its non-GAAP net income came in at $246.95 million and $1.50 per share, up 66.9% and 64.8% from the prior year’s quarter, respectively.
Analysts expect VEEV’s revenue for the quarter ended July 31, 2024, to increase 13.2% year-over-year to $667.84 million. Likewise, its EPS for the same quarter is expected to increase 26.8% year-over-year to $1.53. It surpassed the Street EPS estimates in each of the trailing four quarters. Over the past nine months, the stock has gained 15.5% to close the last trading session at $200.25.
VEEV’s robust fundamentals are reflected in its POWR Ratings. It has an overall rating of B, which translates to a Buy in our proprietary rating system.
It has an A grade for Growth and Quality and a B for Sentiment. Within the Medical - Services industry, it is ranked #18 out of 61 stocks. To see VEEV’s Value, Momentum, and Stability rating, click here.
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UNH shares were trading at $586.97 per share on Wednesday afternoon, down $0.38 (-0.06%). Year-to-date, UNH has gained 12.41%, versus a 18.18% rise in the benchmark S&P 500 index during the same period.
About the Author: Abhishek Bhuyan
Abhishek embarked on his professional journey as a financial journalist due to his keen interest in discerning the fundamental factors that influence the future performance of financial instruments.
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