Healthcare companies are pushing the status quo by innovating in areas like drug development and digital health. But financial performance has lagged recently as players offloaded surplus COVID inventories in 2023 and 2024, a headwind for overall demand. The result? Over the past six months, the industry’s 13.9% return has trailed the S&P 500 by 18.8 percentage points.
Only some companies are subject to these dynamics, however, and a handful of high-quality businesses can deliver earnings growth in any environment. Taking that into account, here is one resilient healthcare stock at the top of our wish list and two we’re swiping left on.
Two Healthcare Stocks to Sell:
QuidelOrtho (QDEL)
Market Cap: $2.04 billion
Born from the 2022 merger of Quidel and Ortho Clinical Diagnostics, QuidelOrtho (NASDAQ: QDEL) develops and manufactures diagnostic testing solutions for healthcare providers, from rapid point-of-care tests to complex laboratory instruments and systems.
Why Are We Out on QDEL?
- Constant currency growth was below our standards over the past two years, suggesting it might need to invest in product improvements to get back on track
- Capital intensity has ramped up over the last five years as its free cash flow margin decreased by 21 percentage points
- Waning returns on capital from an already weak starting point displays the inefficacy of management’s past and current investment decisions
QuidelOrtho’s stock price of $30.53 implies a valuation ratio of 10.7x forward P/E. Check out our free in-depth research report to learn more about why QDEL doesn’t pass our bar.
DaVita (DVA)
Market Cap: $9.38 billion
With over 2,600 dialysis centers across the United States and a presence in 13 countries, DaVita (NYSE: DVA) operates a network of dialysis centers providing treatment and care for patients with chronic kidney disease and end-stage kidney disease.
Why Does DVA Fall Short?
- Annual sales growth of 2.7% over the last five years lagged behind its healthcare peers as its large revenue base made it difficult to generate incremental demand
- Flat treatments over the past two years show it’s struggled to increase its sales volumes and had to rely on price increases
- Estimated sales growth of 3.4% for the next 12 months implies demand will slow from its two-year trend
At $131.16 per share, DaVita trades at 11.2x forward P/E. Dive into our free research report to see why there are better opportunities than DVA.
One Healthcare Stock to Watch:
Intuitive Surgical (ISRG)
Market Cap: $162.2 billion
Pioneering minimally invasive surgery since its first da Vinci system was FDA-cleared in 2000, Intuitive Surgical (NASDAQ: ISRG) develops and manufactures robotic-assisted surgical systems that enable minimally invasive procedures across various medical specialties.
Why Do We Watch ISRG?
- Products are seeing elevated demand as its system placement averaged 11.4% growth over the past two years
- Estimated revenue growth of 14.2% for the next 12 months implies its momentum over the last two years will continue
- Earnings growth has trumped its peers over the last five years as its EPS has compounded at 17.7% annually
Intuitive Surgical is trading at $454.95 per share, or 54.1x forward P/E. Is now a good time to buy? Find out in our full research report, it’s free for active Edge members.
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