Due to inelastic demand, medical businesses are nevertheless robust. On top of it, given the increasing prevalence of chronic diseases, the aging population, and rising health awareness, new drugs and solutions are in line for development at full tilt. Moreover, with rapid technological advancements, the medical industry is expected to witness significant growth in the near future.
Therefore, we think it could be wise to buy fundamentally sound equities like Novo Nordisk A/S (NVO), AmerisourceBergen Corporation (ABC), Cardinal Health, Inc. (CAH), and Haemonetics Corporation (HAE) due to their excellent vitals.
In a nation where about 20% of the Gross Domestic Product (GDP) is for healthcare, more than 10,000 people turn 65 in the United States every day, driving the demand for companies across the sector. The Centers for Medicare and Medicaid Services estimates that U.S. healthcare spending will reach $6.8 trillion by 2030.
Moreover, the market for digital healthcare is growing as a result of the proliferation of smartphones combined with improved internet connectivity to deliver remote healthcare services using digital routes and is projected to grow at a CAGR of 17.1% from 2023 to 2030. Furthermore, the global healthcare market is expected to expand at a CAGR of 22.3% by 2028.
Since Fed officials indicated more rate hikes ahead, recession fears are resurfacing. Against this backdrop, fundamentally strong medical stocks NOV, ABC, CAH, and HAE could help the health of investors’ portfolios this year.
Novo Nordisk A/S (NVO)
Headquartered in Bagsvaerd, Denmark, NVO is a global healthcare company engaged in the discovery, development, manufacturing, and marketing of pharmaceutical products. It operates through two business segments: Diabetes and Obesity care; and Biopharm.
On March 2, one of the company's major R&D centers outside of Denmark was created with the announcement of the development of its Research and Development (R&D) presence in the greater Boston metro region.
Marcus Schindler, Ph.D., executive vice president for Research & Early Development and chief scientific officer of NVO, said, “We are committing to further expansion and to having a major life sciences presence in the Boston area, to support pipeline expansion into new modalities, with the ultimate goal of delivering new innovative medicines to people living with chronic diseases.”
For the fiscal fourth quarter that ended December 31, 2022, NVO’s net sales increased 25.5% year-over-year to Kr48.09 billion ($6.94 billion), while its operating profit came in at Kr17.09 billion ($2.47 billion), up 25.3% year-over-year. The company’s net profit came in at Kr13.59 billion ($1.96 billion) and Kr6.02 per share, representing a 24.8% and 26.5% increase year-over-year, respectively.
The consensus revenue estimate of $7.07 billion for the first quarter ending March 31, 2023, reflects a 17.8% year-over-year growth. The consensus EPS estimate of $1.09 for the ongoing quarter indicates a 24.1% increase year-over-year. Moreover, NVO surpassed the consensus revenue estimates in three of the four trailing quarters.
The stock has gained 56% over the past six months to close the last trading session at $152.75.
NVO’s promising fundamentals are apparent in its POWR Ratings. The stock has an overall rating of A, which equates to a Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
It has an A grade for Quality and a B for Value, Stability, and Sentiment. Out of 168 stocks in the Medical - Pharmaceuticals industry, it is ranked first. Click here to see the other ratings of NVO for Growth and Momentum.
AmerisourceBergen Corporation (ABC)
ABC is a global pharmaceutical sourcing and distribution services company. The company’s segments include U.S. Healthcare Solutions; and International Healthcare Solutions. The company provides services to healthcare providers and pharmaceutical and biotech manufacturers.
On January 3, ABC acquired PharmaLex Holding GmbH. This acquisition is expected to help ABC enhance its growth strategy by advancing its prowess as a global pharmaceutical company.
For the fiscal first quarter that ended on December 31, 2022, ABC’s revenue increased 5.4% year-over-year to $62.85 billion. Its gross profit grew 4.2% from the year-ago value to $2.15 billion. The company’s non-GAAP net income increased 2.6% year-over-year to $559.65 million, while its adjusted EPS came in at $2.71, up 5% year-over-year.
Street expects ABC’s EPS to increase by 2.7% year-over-year to $3.31 for the fiscal second quarter (ending March 31, 2023). Its revenue is expected to increase by 4.7% year-over-year to $60.41 billion in the same period. The company has an excellent earnings surprise history, as it surpassed the EPS and revenue estimates in each of the trailing four quarters.
Shares of ABC have gained 14% over the past six months to close the last trading session at $156.41.
ABC’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 also has an A grade for Value and a B for Growth and Stability. In the Medical - Services industry, it is ranked #3 of 75 stocks. Click here to see the other ratings of ABC (Momentum, Sentiment, and Quality).
Cardinal Health, Inc. (CAH)
CAH operates as a globally integrated healthcare services and products company. It focuses on providing customized solutions for hospitals, healthcare systems, pharmacies, ambulatory surgery centers, clinical laboratories, physician offices, and patients in the home. The company operates in two segments: Pharmaceutical; and Medical.
On March 6, CAH announced its partnership with Signify Health, Inc. (SGFY) to provide in-home clinical and pharmaceutical management services through its Outcomes division. This agreement should assist in saving expenses and minimize care gaps for more than 2.3 million members across the nation to support their treatment journey by offering coordinated care from SGFY clinicians.
On February 10, CAH declared a quarterly dividend of $0.4957 per share, payable to its shareholders on April 15, 2023. Its four-year average dividend yield is 3.58%, and its current dividend of $1.98 translates to a 2.82% yield on prevailing prices. Its dividend payouts have grown at a 1% CAGR over the past three years and a 1.5% CAGR over the past five years. Also, it has a record of 28 years of consecutive dividend growth.
CAH’s revenue increased 13.2% year-over-year to $51.47 billion in the second quarter that ended December 31, 2022. The company’s gross margin increased 2.9% year-over-year to $1.66 billion, and non-GAAP EPS came in at $1.32, up 3.9% year-over-year. Also, its non-GAAP EBIT rose marginally year-over-year to $450 million.
Street expects CAH’s EPS to increase marginally year-over-year to $1.48 for the third quarter ending March 31, 2023. Its revenue is expected to increase by 10.3% year-over-year to $49.45 billion in the same period. Also, it surpassed the revenue estimates in each of the trailing four quarters.
The stock has gained 29.2% over the past nine months to close the last trading session at $70.37.
It is no surprise that CAH has an overall rating of A, equating to a Strong Buy in our proprietary rating system. It has a B grade for Growth, Value, and Sentiment. Within the Medical - Services industry, it is ranked #2 of 75 stocks.
In addition to the POWR Ratings stated above, we have also given CAH grades for Momentum, Stability, and Quality. Get all CAH ratings here.
Haemonetics Corporation (HAE)
HAE is a healthcare company that provides a suite of medical products and solutions for customers to help them improve patient care and reduce the cost of healthcare. Its technology addresses medical markets: blood and plasma component collection, the surgical suite, and hospital transfusion services.
On March 2, HAE received clearance from the U.S. Food and Drug Administration (FDA) on the next generation ‘Intelligent Control’ software for Cell Saver® Elite®+ Autotransfusion System.
“This latest upgrade represents a significant advancement in our Cell Salvage platform and builds upon our nearly 50-year foundation as the leader in autotransfusion. The Intelligent Control software enhances our SmartSuction® and Latham bowl technologies to help maximize the recovery of red blood cells," said Stewart Strong, President of Global Hospital at HAE.
HAE’s net revenue increased 17.5% year-over-year to $305.30 million in the fiscal third quarter that ended December 31, 2022. Its gross profit grew 14.5% from its year-ago value to $158.71 million, while its operating income rose 21.4% from the prior-year quarter to $43.28 million. The company’s adjusted net income and non-GAAP EPS increased marginally year-over-year to $43.56 million and $0.85, respectively.
Analysts expect its revenue and EPS to increase by 9.7% and 8.4% year-over-year to $290.79 million and $0.70 in the fourth quarter ending March 31, 2023. Moreover, the company surpassed EPS and revenue estimates in all four trailing quarters, which is promising.
Over the past year, the stock has gained 33.5% to close the last trading session at $77.42.
HAE’s POWR Ratings reflect this promising outlook. The stock has an overall rating of B, translating to Buy in our POWR Ratings system.
Also, it has a B grade in Growth, Value, and Sentiment. It is ranked #15 of 140 stocks in the Medical - Devices & Equipment industry. Click here to see the other ratings of HAE for Momentum, Stability, and Quality.
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NVO shares were trading at $155.34 per share on Monday afternoon, up $2.59 (+1.70%). Year-to-date, NVO has gained 15.44%, versus a 4.43% 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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