Healthcare companies are making significant strides in developing drugs and therapeutics for some of the most severe conditions. Positive clinical trial results and improved patient outcomes are driving the need for ongoing medical care and treatment.
Against this backdrop, it could be wise to invest in fundamentally sound medical stocks Medtronic plc (MDT), FONAR Corporation (FONR), and Electromed, Inc. (ELMD), which are trading at a discount relative to their peers.
Due to the rise of chronic diseases, healthcare agencies are focusing more on early diagnosis and treatment. This has resulted in an increase in patients undergoing diagnostic and surgical procedures, driving the demand for medical devices. The global medical devices market is projected to grow from $536.12 billion in 2023 to $799.67 billion by 2030, exhibiting a CAGR of 5.9%.
Furthermore, leading companies are investing heavily in R&D to develop technologically advanced equipment to meet this growing demand. According to BlueWeave Consulting’s recent study, the global drug discovery services market is projected to grow at a CAGR of 15.2%, reaching $52.8 billion by 2029.
On top of it, the economic burden and aging population have led to a shift towards home healthcare services. Several healthcare agencies are developing new, easy-to-use medical equipment, such as portable and wearable devices, to treat chronic diseases at home.
Propelled by a rapid increase in the adoption of home healthcare services, the global home healthcare market is anticipated to attain a value of $710.50 billion by 2031, growing at a CAGR of 10.1%.
Given this backdrop, let us evaluate the fundamentals of the featured stocks in detail.
Medtronic plc (MDT)
Headquartered in Dublin, Ireland, MDT provides healthcare technology solutions to physicians, clinicians, patients, and healthcare systems globally. Its operating segments include Cardiovascular Portfolio; Medical Surgical Portfolio; Neuroscience Portfolio; and Diabetes Operating Unit.
On May 25, MDT announced the acquisition of EOFlow Co. Ltd., the manufacturer of a wearable insulin patch named EOPatch® device. The integration of this device with MDT’s next-generation sensor and clinically proven Meal Detection Technology™ algorithm is expected to expand the company's ability to serve more people living with diabetes globally.
Further, its customers would have access to various solutions across innovative Multiple Daily Injections (MDI), tethered insulin pumps, and wearable insulin patch technologies. As the company makes efforts to expand its offerings, it should help boost the revenues of the Diabetes Operating Unit.
In terms of forward non-GAAP P/E, MDT is trading at 17.23x, 14.8% lower than the industry average of 20.21x. Its forward Price/Sales multiple of 3.60 is 15.4% lower than the industry average of 4.25x. In addition, MDT’s forward Price/Book ratio of 2.17 is 21% lower than the industry average of 2.75.
In the fiscal fourth quarter that ended April 28, 2023, MDT’s net sales increased 5.6% year-over-year to $8.54 billion). Its non-GAAP operating profit grew 4.6% from the year-ago value to $2.51 billion, while its adjusted attributable net income rose 2.6% from the prior-year quarter to $2.09 billion. Also, its non-GAAP EPS increased 3.2% year-over-year to $1.57 in the same period.
Street expects MDT’s revenue to increase 2.6% year-over-year to $7.56 billion for the fiscal 2024 first quarter (ending July 2023). Its EPS for the ongoing quarter is expected to be $1.11. Moreover, the company surpassed the EPS estimates in each of the trailing four quarters.
Also, its revenue and EBITDA have grown at CAGRs of 2.6% and 5.4% over the past three years, respectively, while its EBIT has increased at a 7.8% CAGR over the same period.
MDT’s trailing-12-month gross profit margin of 66.20% is 18.6% higher than the 55.84% industry average. Also, its trailing-12-month EBITDA margin of 29.32% compares to the industry average of 3.53%.
The stock has gained 12.3% over the past six months to close the last trading session at $87.
MDT’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall A rating, which equates to a Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
MDT has a B grade for Growth, Value, and Stability. Out of 137 stocks in the Medical - Devices & Equipment industry, it is ranked #4.
In addition to the POWR Ratings we have stated above, one can see MDT ratings for Momentum, Sentiment, and Quality here.
FONAR Corporation (FONR)
FONR engages in the research, development, production, and marketing of Magnetic Resonance Imaging (MRI) scanners to detect and diagnose human diseases. It operates through the Medical Equipment; Physician Management; and Diagnostic Services segments.
In terms of trailing-12-month EV/Sales, FONR is trading at 0.96x, 76.6% lower than the industry average of 4.10x. The stock’s trailing-12-month EV/EBIT of 5.70x is 73.5% lower than the 21.54x industry average. Furthermore, the stock’s trailing-12-month Price/Cash Flow of 7.33x is 59.5% lower than the 18.08x industry average.
FONR’s net revenues increased 3.5% year-over-year to $25.42 million for the quarter that ended on March 31, 2023, while its income from operations amounted to $4.17 million.
Its net income and EPS came in at $4.48 million and $0.55 per share, reflecting increases of 37.5% and 71.9% from the prior-year quarter, respectively. In addition, its cash and cash equivalents at the end of the period stood at $49.64 million, up 7.9% year-over-year.
FONR’s revenue and total assets have grown at CAGRs of 3.8% and 5.2%, respectively, over the past three years. Likewise, it levered FCF has increased at a CAGR of 15.9% in the same period.
The stock’s trailing-12-month EBITDA margin of 21.30% is significantly higher than the 3.53% industry average. Likewise, its trailing-12-month ROCE and ROTC of 6.50% and 5.54% compare to the negative industry averages of 42.62% and 23.10%, respectively.
Over the past nine months, the stock has gained 18.8% to close the last trading session at $16.86.
FONR’s solid prospects are reflected in its POWR Ratings. The stock has an overall rating of A, which translates to a Strong Buy in our proprietary rating system. It has an A grade for Stability and a B for Growth, Value, Sentiment, and Quality. Also, within the same industry, it is ranked first.
Click here to see FONR’s rating for Momentum.
Electromed, Inc. (ELMD)
ELMD develops, manufactures, and markets innovative High-Frequency Chest Wall Oscillation (HFCWO) airway clearance products used in pulmonary care for patients of all ages. It offers SmartVest Airway Clearance System, including SmartVest SQL and SmartVest Connect wireless technology and related products, to patients with compromised pulmonary function.
ELMD’s forward EV/Sales and Price/Sales multiples of 1.90 and 2.04 are 48.8% and 51.9% lower than the industry averages of 3.71x and 4.25x, respectively.
During the fiscal third quarter that ended March 31, 2023, ELMD’s net revenues increased 19% year-over-year to $12.07 million. Its gross profit rose 16.9% from the prior-year quarter to $9.06 million, while its operating income improved 38.6% from the year-ago value to $1.19 million.
The company’s net income amounted to $1.08 million and $0.12 per share, representing 66.7% and 71.4% year-over-year increases from the same period last year.
The consensus EPS estimate of $0.13 for the fourth quarter ending June 30, 2023, represents a 225% improvement year-over-year. The consensus revenue estimate of $12.80 million for the ongoing quarter indicates a 13.6% increase from the prior-year period. In addition, the company surpassed the consensus revenue estimates in three of its trailing four quarters, which is promising.
Its revenue has increased at a CAGRs of 10.2% and 10.5% over the past three and five years, respectively. Also, its total assets have grown at a CAGR of 9.1% over the past three years.
ELMD’s trailing-12-month EBITDA margin of 7.84% is 122.1% higher than the 3.53% industry average. Likewise, its trailing-12-month gross profit margin of 74.77% is 33.9% higher than the industry average of 55.84%. In addition, its trailing-12-month ROCE and ROTA of 7.15% and 5.87% compared to the negative industry averages of 42.62% and 33.13%, respectively.
Shares of ELMD have gained 14.2% over the past six months and 7.6% year-to-date to close the last trading session at $11.29.
ELMD’s POWR Ratings reflect this promising outlook. The stock has an overall rating of A, which equates to a Strong Buy in our proprietary rating system.
Among the 137 stocks in the same industry, it is ranked #3. ELMD is also rated an A in Sentiment and a B in Growth, Value, and Stability. To see additional POWR Ratings of ELMD for Momentum and Quality, click here.
What To Do Next?
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MDT shares were trading at $86.89 per share on Tuesday afternoon, down $0.11 (-0.13%). Year-to-date, MDT has gained 13.65%, versus a 14.62% rise in the benchmark S&P 500 index during the same period.
About the Author: Shweta Kumari
Shweta's profound interest in financial research and quantitative analysis led her to pursue a career as an investment analyst. She uses her knowledge to help retail investors make educated investment decisions.
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