Henry Schein (HSIC) Q3 Earnings Analysis: A Medical Stock to Watch?

Henry Schein, Inc. (HSIC), a leading provider of healthcare solutions to office-based dental and medical practitioners, reported solid fiscal 2023 third-quarter results. The company posted revenue of $3.20 billion, an increase of 3.1% compared to the third quarter of 2022.

The company’s global dental sales grew 5.4% year-over-year, with solid sales growth in consumable merchandise driven by acquisitions. HSIC’s non-GAAP net income for the third quarter was $1.32 per share, compared with the prior year’s value of $1.29 per share.

“The Company achieved good total sales growth and non-GAAP diluted EPS growth despite continued lower sales of PPE products and COVID-19 test kits. Profitability benefitted from our technology, value-added services, and dental specialty products as we continue towards our goal of achieving 40% of operating income from sales of high-growth, high-margin products,” said Stanley M. Bergman, HSIC’s CEO.

Further, to accelerate the implementation of its 2022-2024 BOLD+1 Strategic Plan, the medical company invested around $417 million in business acquisitions during the third quarter of this year and $668 million year-to-date and committed more than $1 billion in capital to announced acquisitions year-to-date.

During the third quarter, HSIC repurchased nearly 660,000 shares of its common stock at an average price of $75.79 per share, for $50 million. At the end of the quarter, the company had approximately $315 million authorized and available for future stock repurchases.

“We are more than halfway through our three-year BOLD+1 Strategic Plan," Bergman added. “Despite current macroeconomic conditions and the cybersecurity incident, we have confidence in the stability of the dental and medical markets and remain committed to our strategic priorities and long-term financial model, which includes high single-digit to low double-digit operating income growth.”

Shares of HSIC have declined 6.3% over the past month to close its last trading session at $68.76.

Let’s look at factors that could influence HSIC’s performance in the upcoming months.

Positive Recent Developments

On October 18, Henry Schein completed the acquisition of Shield Healthcare, Inc., a leading supplier of homecare medical products delivered directly to patients in their homes. Building on HSIC’s 2021 acquisition of Prism Medical Products LLC, Shield Healthcare will expand its existing medical business by offering a diverse range of products.

“Through our strategic homecare products investments, our Henry Schein Medical business is increasingly well positioned to compete in the homecare medical supplies market. By combining our strong physician relationships, product distribution expertise, and corporate brand assortment, we are well positioned for growth in this market segment,” said Stanley M Bergman.

On August 9, the company launched a new equipment repair subscription offering - Henry Schein Thrive Service Plus, delivered by ServiceFirst and the newest addition to the exclusive portfolio of benefits and value offered as part of the Henry Schein Thrive Rewards program.

Also, on August 2, HSIC acquired a majority ownership interest in Large Practice Sales LLC (LPS), a leading advisor to independent dental practices on their sale or partnership with larger general practice and dental specialists. LPS is complementary to HSIX’s existing Dental Practice Transition business and its commitment to deliver value-added services to its customers.

Robust Financials

For the third quarter that ended September 30, 2023, HSIC’s net sales increased 3.1% year-over-year to $3.16 billion. Its global dental sales were $1.90 billion, up 5.4% from the prior year’s period, while its global technology and value-added services sales were $210 million, an increase of 18.8% year-over-year. Its gross profit rose 8.9% from the year-ago value to $995 million.

Also, non-GAAP EPS attributable to Henry Schein, Inc. came in at $1.32, up 2.3% from the previous year’s quarter.

Solid Historical Growth

HSIC’s revenue grew at a CAGR of 9.7% over the past three years, while its EBITDA improved at a CAGR of 11.4%. Its total assets increased at a CAGR of 7.7% over the same period. In addition, the company’s normalized net income grew at a CAGR of 12% over the same time frame.

Favorable Analyst Estimates

Analysts expect HSIC’s revenue for the fiscal year (ending December 2023) to come in at $12.98 billion, indicating an increase of 4.9% year-over-year. The consensus EPS estimate of $5.23 for the same period reflects a 14.7% year-over-year improvement. Further, the company’s EPS is expected to grow 8.5% per annum over the next five years.

High Profitability

HSIC’s trailing-12-month EBITDA margin of 8.33% is 63.9% higher than the 5.08% industry average. Its trailing-12-month net income margin of 3.51% favorably compares to the industry average of negative 6.52%. Likewise, the stock’s trailing-12-month levered FCF of 3.45% is considerably higher than the industry average of 0.26%.

Furthermore, the stock’s trailing-12-month ROCE, ROTC, and ROTA of 12.41%, 7.91%, and 4.87% compare to the industry averages of negative 42.55%, negative 22.26%, and negative 31.84%, respectively.

POWR Ratings Reflect Promise

HSIC’s solid fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, translating to Buy in our proprietary system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. HSIC has an A grade for Growth, in sync with its impressive historical growth and solid financial performance in the last reported quarter.

In addition, the stock has a B grade for Stability, consistent with its 24-month beta of 0.71.

HSIC is ranked #15 in the 144-stock Medical - Devices & Equipment industry.

Beyond what I have stated above, we have also given HSIC grades for Sentiment, Value, Momentum, and Quality. Get access to all the HSIC Ratings here.

Bottom Line

HSIC, a prominent provider of healthcare products and services, reported solid financial results in the last reported quarter. Furthermore, the company is well-placed to maintain its growth and profitability, benefiting from its technology, value-added services, and dental specialty products.

Moreover, the company remains committed to its strategic priorities and long-term financial model by investing in profitable business acquisitions. Given HSIC’s solid financials, accelerating profitability, and promising growth outlook, this medical stock could be an ideal buy now.

How Does Henry Schein, Inc. (HSIC) Stack Up Against Its Peers?

While HSIC has an overall POWR Rating of B, investors could also check out these other stocks within the Medical - Devices & Equipment industry with A (Strong Buy) or B (Buy) ratings: Olympus Corp. ADR (OCPNY), MiMedx Group, Inc (MDXG), and Fonar Corporation (FONR).

For exploring more A and B-rated medical stocks, click here.

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HSIC shares were unchanged in premarket trading Friday. Year-to-date, HSIC has declined -13.91%, versus a 19.04% rise in the benchmark S&P 500 index during the same period.

Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.

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