With an aging population and rising infectious and chronic diseases, personalized medicine and tech advances drive the medical industry’s growth. Hence, investing in strong healthcare stocks like Abbott Laboratories (ABT), Stryker Corporation (SYK), and Centene Corporation (CNC) could be wise, as these companies are poised to benefit from ongoing innovations and aging population trends.
The healthcare industry is promising due to rising medical needs, new technologies, and consistent demand for healthcare. This allows medical companies to thrive and maintain profits regardless of the economy. Notably, the national healthcare expenditures (NHE) are projected to surpass $5 trillion in 2024, increasing to $7.7 trillion by 2032.
Given rising health expenses and an aging population, health insurance is becoming increasingly crucial. Healthcare spending remains a priority despite economic cycles, boosting health insurance companies' profit margins. Statista predicts that the global health insurance market will reach a gross written premium of $2.38 trillion this year, with average per capita spending expected to be $306.70 in 2024.
The healthcare industry embraces AI, AR, VR, and gene editing to enhance disease detection and treatment. The digital health market is projected to reach $132.10 billion in 2024, growing at 6.5% annually to $180.70 billion by 2029. Additionally, the MedTech industry is expected to grow at a CAGR of 5.6%, reaching $595 billion this year.
Considering these conducive trends, let’s analyze the fundamentals of the three healthcare stock picks mentioned above.
Abbott Laboratories (ABT)
ABT and its subsidiaries discover, develop, manufacture, and sell healthcare products worldwide. They operate in four segments: Established Pharmaceutical Products, Diagnostic Products, Nutritional Products, and Medical Devices.
On April 29, 2024, ABT announced FDA approval for the Esprit BTK Everolimus Eluting Resorbable Scaffold System, a dissolving stent for arteries below the knee. This innovative treatment, the first of its kind in the U.S., aims to improve outcomes for people with severe peripheral artery disease (PAD), offering long-term vessel support and healing capabilities.
On April 2, 2024, ABT announced FDA approval for TriClip, a pioneering device for transcatheter edge-to-edge repair (TEER) of leaky tricuspid heart valves. This approval provides a minimally invasive treatment option for patients with tricuspid regurgitation who are not suitable for open-heart surgery, potentially improving their quality of life by reducing symptoms and enhancing heart function.
In terms of the trailing-12-month EBITDA margin, ABT’s 25.71% is 328.3% higher than the 6% industry average. Likewise, its 0.55x trailing-12-month asset turnover ratio is 35.9% higher than the 0.41x industry average. Its 17.67% trailing-12-month EBIT margin is 875% higher than the 1.81% industry average.
During the first quarter, which ended on March 31, 2024, ABT’s net sales rose 2.2% year-over-year to $9.96 billion. Its adjusted earnings before taxes were $2.04 billion. In addition, the company’s adjusted net earnings stood at $1.73 billion, or $0.98, respectively.
Street expects ABT’s EPS and revenue for the quarter ended June 30, 2024, to increase 2.4% and 3.9% year-over-year to $1.11 and $10.37 billion, respectively. It surpassed Street EPS estimates in each of the trailing four quarters. Over the past nine months, the stock has gained 6.8% to close the last trading session at $102.33.
ABT’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 #16 out of 131 stocks in the Medical - Devices & Equipment industry. It has an A grade for Stability and a B for Sentiment. Click here to see ABT’s ratings for Growth, Value, Momentum, and Quality.
Stryker Corporation (SYK)
SYK operates as a medical technology company. The company operates through two segments: MedSurg and Neurotechnology, and Orthopaedics and Spine.
In terms of the trailing-12-month EBIT margin, SYK’s 21.02% is considerably higher than the 1.81% industry average. Likewise, its 0.55x trailing-12-month asset turnover ratio is 35.5% higher than the 0.41x industry average. Moreover, its 63.99% trailing-12-month gross profit margin is 11.6% higher than the 57.34% industry average.
For the first quarter that ended on March 31, 2024, SYK’s net sales increased 9.7% year-over-year to $5.24 billion. Its adjusted gross profit grew 10.6% from the year-ago value to $3.34 billion.
SYK’s adjusted operating income was $1.15 billion, an increase of 13.9% from the previous year’s period. Furthermore, the company’s net earnings and adjusted EPS amounted to $962 million and $2.50, up 17.3% and 16.8% year-over-year, respectively.
Analysts expect SYK’s revenue for the quarter ended June 30, 2024, to increase 8.2% year-over-year to $5.41 billion. Likewise, its EPS for the same quarter is expected to increase 9.9% year-over-year to $2.79. It surpassed the consensus EPS estimates in each of the trailing four quarters. The stock has gained 24.9% over the past nine months to close the last trading session at $332.02.
SYK’s positive outlook is reflected in its POWR Ratings. It has a B grade for Growth and Stability. It is ranked #34 in the Medical - Devices & Equipment industry. Click here to see SYK’s Value, Momentum, Sentiment, and Stability ratings.
Centene Corporation (CNC)
CNC operates as a healthcare enterprise that provides programs and services to under-insured and uninsured families, commercial organizations, and military families. The company operates through segments including Medicaid, Medicare, Commercial, and Other.
In terms of the trailing-12-month EBIT margin, CNC’s 3.40% is 87.7% higher than the 1.81% industry average. Likewise, its 1.72x trailing-12-month asset turnover ratio is 324.9% higher than the 0.41x industry average. Additionally, its 1.22% trailing-12-month levered FCF margin of marginally higher than the industry average of 1.21%.
CNC’s total revenues in the fiscal first quarter that ended March 31, 2024, increased 3.9% year-over-year to $40.41 billion. Its adjusted net earnings and adjusted EPS stood at $1.22 billion and $2.26, up 4.1% and 7.11% from the prior-year quarter, respectively.
Moreover, as of March 31, 2024, CNC’s total cash, cash equivalents and restricted cash and cash equivalents stood at $17.88 billion, compared to $16.17 billion as of March 31, 2023.
For the quarter ending December 31, 2024, CNC’s EPS is expected to increase 68% year-over-year to $0.76. Its revenue for fiscal 2024 is expected to increase 3.6% year-over-year to $155.04 billion. CNC surpassed the Street EPS estimates in each of the trailing four quarters. Over the past year, the stock has declined marginally to close the last trading session at $66.76.
CNC’s strong 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 a B grade for Value, Stability, and Quality. Within the A-rated Medical - Health Insurance industry, it is ranked first out of 11 stocks. To see CNC’s Growth, Momentum, and Sentiment rating, click here.
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ABT shares were trading at $102.33 per share on Thursday afternoon, down $0.87 (-0.84%). Year-to-date, ABT has declined -6.12%, versus a 16.76% 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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