The healthcare industry, which prospered during the COVID-19 pandemic, is expected to stay buoyed in the foreseeable future amid increasing health awareness, an aging population, and advanced technological developments. The global healthcare services market is expected to grow to $9.82 trillion in 2027, growing at a CAGR of 5.3%.
Medical technology played a vital role in the pandemic and led to various developments in the healthcare landscape. The demand for efficient and advanced medical devices is poised for growth. According to Fortune Business Insights, the global U.S. Medical Devices Market size is projected to reach $255.14 billion by 2029, at a CAGR of 5.4% between 2022 and 2029.
Furthermore, healthcare companies face an inelastic demand for their products and services. CNBC’s Jim Cramer believes that healthcare stocks have stayed relatively steady in 2022 because they tend to be recession-resistant or perform well regardless of broader economic conditions.
Against this backdrop, fundamentally sound medical stocks Abbott Laboratories (ABT) and Varex Imaging Corporation (VREX) could be ideal buys now. However, SmileDirectClub, Inc. (SDC) might be best avoided, given its weak fundamentals.
Stocks to Buy:
Abbott Laboratories (ABT)
ABT discovers, develops, manufactures, and sells diversified healthcare products. The company operates through four segments: Established Pharmaceutical Products; Diagnostic Products; Nutritional Products; and Medical Devices.
On January 17, 2023, ABT announced that the U.S. Food and Drug Administration (FDA) approved the company’s latest-generation transcatheter aortic valve implantation (TAVI) system, Navitor™, to treat people with severe aortic stenosis who are at high or extreme risk for open-heart surgery.
Michael Dale, senior vice president of ABT’s structural heart business, said, “Our Navitor valve builds upon our industry-leading portfolio of minimally invasive devices that surpass existing standards of care to address a range of heart diseases.”
On December 29, 2022, ABT announced the FDA approval of the company’s Eterna™ spinal cord stimulation (SCS) system, the smallest implantable, rechargeable spinal cord stimulator currently available on the market for the treatment of chronic pain. This is expected to be a major step forward in the company’s operations.
On December 9, ABT declared a quarterly common dividend of 51 cents per share, indicating an increase of 8.5%, payable to shareholders on February 15, 2023. This marks ABT’s 51st consecutive year of dividend growth and the 396th consecutive quarterly dividend payment. This reflects the company’s cash generation abilities.
For the nine months that ended September 30, 2022, ABT’s net sales increased 6.2% year-over-year to $33.56 billion. During the same period, the company’s operating earnings grew 16.7% year-over-year to $7.06 billion, while its net earnings increased 16.1% year-over-year to $5.90 billion, its earnings per common share came in at $3.32, up 17.3% year-over-year.
Analysts expect ABT to report revenue and EPS of $43.21 billion and $5.21 for the fiscal year ended December 2022, respectively, indicating marginal year-over-year increases. The company surpassed the consensus EPS estimates in each of the trailing four quarters, which is impressive.
Over the past three months, the stock has gained 18.7% to close the last trading session at $112.82. Moreover, it has also gained 4.4% over the past month.
ABT’s POWR Ratings reflect its strong fundamentals. The stock has an overall rating of B, which equates to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
ABT has an A grade for Sentiment and a B for Value, Stability, and Quality. It is ranked #7 of 146 stocks in the Medical – Devices & Equipment industry.
Click here to see ABT’s ratings for Growth and Momentum.
Varex Imaging Corporation (VREX)
VREX designs and manufactures X-ray imaging components. The company operates in two segments: Medical and Industrial. VREX has a 70-plus-year history of successful innovation and employs approximately 2,100 people in North America, Europe, and Asia.
VREX’s forward non-GAAP P/E multiple of 16.84 is 17.3% lower than the industry average of 20.36. The stock’s forward EV/EBIT multiple of 10.98 is 38.1% lower than the industry average of 17.73, while its 1.36x forward EV/Sales is 67% lower than the industry average of 4.11x.
Sunny Sanyal, Chief Executive Officer of VREX, said, “Fiscal year 2022 presented various challenges, including supply chain disruptions and inflationary pressure. Varex employees managed through these disruptions, leading to growth in sales and earnings, and we made progress with new products and investments in future growth.”
VREX’s total revenues increased 2.3% year-over-year to $231.40 million in its fiscal fourth quarter that ended September 30, 2022. Its non-GAAP gross profit came in at $76.20 million, while non-GAAP net income came in at $17.20 million. Its non-GAAP net income per share for the same quarter came in at $0.42.
For the first quarter of the fiscal year 2023, VREX expects revenues to be between $195 million and $215 million and non-GAAP net earnings per share between $0.10 and $0.30.
Analysts expect VREX’s revenue to increase 4.4% year-over-year to $224.23 million for the fiscal second quarter ending March 2023. Its EPS is estimated to come in at $0.29 for the same quarter. In addition, it surpassed the consensus EPS and revenue estimates in three of the trailing four quarters.
Over the past three months, the stock has gained 3.3% to close its trading session at $21.39. Moreover, it has also gained 7.2% over the past month.
VREX’s promising prospects are reflected in its POWR Ratings. The stock has an overall A rating, which indicates a Strong Buy in our proprietary rating system.
VREX has a B grade for Growth and Value. Within the Medical – Devices & Equipment industry, it is ranked #17.
Click here to see the additional POWR Ratings for Momentum, Stability, Sentiment, and Quality for VREX.
Stock to Avoid:
SmileDirectClub, Inc. (SDC)
SDC is an oral care company offering clear aligner therapy treatment, impression, and various ancillary oral care products. The company manages the end-to-end process, which includes marketing, aligner manufacturing, fulfillment, treatment, and monitoring.
SDC’s total revenues decreased 22.5% year-over-year to $106.77 million for the fiscal third quarter that ended September 30, 2022. Its gross profit came in at $74.78 million, representing a decline of 23.9% year-over-year. Also, net loss attributable to SDC and loss per share of class A common stock came in at $21.67 million and $0.18, respectively.
Analysts expect SDC’s revenue to decrease 4.4% year-over-year to $450.20 million in its fiscal year ending December 2023. Its EPS is estimated to come in at negative $0.49 for the same period.
Over the past year, the stock has declined 11.4% to close its last trading session at $0.54. Also, it has declined 1.6% over the past six months.
SDC’s POWR Ratings reflect its weak prospects. The stock has an overall D rating, which equates to a Sell in our proprietary rating system.
SDC has a D grade for Momentum, Stability, Sentiment, and Quality. Within the same industry, it is ranked #111.
To see the additional POWR Ratings for Growth and Value for SDC, click here.
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ABT shares fell $1.82 (-1.61%) in premarket trading Monday. Year-to-date, ABT has gained 1.46%, versus a 3.73% rise in the benchmark S&P 500 index during the same period.
About the Author: Sristi Suman Jayaswal
The stock market dynamics sparked Sristi's interest during her school days, which led her to become a financial journalist. Investing in undervalued stocks with solid long-term growth prospects is her preferred strategy. Having earned a master's degree in Accounting and Finance, Sristi hopes to deepen her investment research experience and better guide investors. More...
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