As economies grow and healthcare infrastructure advances, the medical industry is strategically positioned to seize new opportunities. The sector is also undergoing rapid evolution, marked by a surge in telemedicine adoption, AI and machine learning integration, and an escalating use of wearables and remote monitoring devices.
The aging population and the rise in chronic, Non-Communicable Diseases (NCDs) provide opportunities for the healthcare sector to expand to address people’s medical needs. Moreover, the healthcare industry is increasingly leveraging technology to stay ahead.
The global medical devices market value is projected to be $471.80 billion in 2023. The revenue is expected to expand at a CAGR of 5.3% to reach $609.70 billion by 2028. In global comparison, the United States is expected to generate the highest revenue this year.
In addition, the global shift toward digitalization, accelerated by the ongoing digital revolution, is creating new avenues for the digital health market. Technological advancements, particularly in areas such as telemedicine, wearable devices, and health informatics, are poised to play a pivotal role in reshaping the industry landscape.
As a result, revenue in the digital health market is projected to reach $44.45 billion in 2023. The revenue is expected to expand at a CAGR of 8.5% to reach $66.96 billion by 2028.
With expanding healthcare expenditures, the healthcare services market, which was valued at $10.30 trillion in 2021, is projected to reach $21.06 trillion by 2030, growing at a CAGR of 8.3% between 2023 and 2030.
Considering these conducive trends, let’s examine the fundamentals of the three medical stock picks.
Cardinal Health Inc. (CAH)
CAH is a global healthcare services and products company that provides customized solutions for various healthcare entities. It operates in pharmaceutical and medical segments and distributes a wide range of products, offers pharmacy management services, and manufactures medical devices.
On November 14, CAH declared a quarterly dividend of $0.5006 per share out of the company’s capital surplus. The dividend is payable on January 15, 2024. Its annual dividend of $2 yields 1.94% on the prevailing price level, compared to a four-year dividend yield of 3.28%.
On November 9, CAH debuted SmartGown™ EDGE, a Breathable Surgical Gown with ASSIST™ Instrument Pockets in the United States, offering surgical teams safe and convenient access to frequently used instruments.
Developed with Mayo Clinic, the gown is rated AAMI level 4 for high fluid exposure protection. It is designed to improve efficiency and safety in the operating room by minimizing the need for instrument handoffs or exchanges, addressing challenges faced by surgical teams. The new product should add to the company’s revenue stream.
During the first quarter ended September 30, 2023, CAH’s non-GAAP net earnings grew 32% year-over-year to $433 million. Its non-GAAP gross margin and EPS amounted to $1.77 billion and $1.73, up 9.5% and 44.2% year-over-year, respectively. The company generated non-GAAP adjusted free cash flow of $995 million, up 190.9% from the previous year quarter.
The company raised its fiscal 2024 guidance range for non-GAAP EPS attributable to CAH from $6.50-$6.75 to $6.75-$7.
CAH’s trailing-12-month levered FCF margin of 1.48% is significantly higher than the industry average of 0.11%, while its trailing-12-month asset turnover ratio of 4.83x is considerably larger than the 0.38x industry average.
CAH’s revenue and EPS are expected to grow 10.7% and 20.3% year-over-year to $57 billion and $1.59 for the second quarter ending December 2023, respectively. The company surpassed the EPS estimates in each of the trailing four quarters, which is impressive.
Shares of CAH increased 35% over the past year and 34.5% year-to-date to close the last trading session at $103.39.
CAH’s POWR Ratings reflect this sound outlook. The stock has an overall rating of A, equating to a Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
CAH has an A grade for Growth and a B for Value. Within the Medical – Services industry, it is ranked #2 out of 66 stocks.
Click here for CAH’s additional Momentum, Stability, Sentiment, and Quality ratings.
Fresenius SE & Co. KGaA (FSNUY)
Based in Bad Homburg vor der Höhe, Germany, FSNUY is a healthcare company that operates through segments like Fresenius Medical Care; Fresenius Kabi; Fresenius Helios; and Fresenius Vamed. It caters to patients with chronic kidney failure, critically and chronically ill patients, and healthcare facilities, offering a range of medical products and operational management services.
On November 14, FSNUY announced advancements in its Vision 2026 strategy by transferring ownership of its plant in Halden, Norway, to HP Halden Pharma AS, a Prange Group company.
In collaboration with Adragos Pharma, the Prange Group will take over the plant, including equipment and staff, ensuring the ongoing production of FSNUY’s products. This move aligns with FSNUY’s goal to streamline operations and enhance efficiency in its worldwide manufacturing network.
On November 8, FSNUY sold fertility services group Eugin to IVI RMA (KKR portfolio company) and GED Capital for up to €500 million ($545.57 million), focusing on core business areas. The transaction aligns with #FutureFresenius, streamlining operations for accelerated performance.
Regulatory approvals for the sale, anticipated in the first quarter of 2024, exclude Fresenius Helios’ existing fertility treatments. Lazard provides financial advice, and Freshfields Bruckhaus Deringer serves as legal counsel.
The company pays an annual dividend of $0.25, which translates to a yield of 3.34% on the current market price, higher than the four-year average of 2.65%.
In the third quarter ended September 29, 2023, FSNUY’s revenue amounted to €5.52 billion ($6.02 billion), up 2.5% year-over-year. Its operating income (EBIT) and EBITDA amounted to €346 million ($377.53 million) and €661 million ($721.24 million), respectively. For the nine months ended September 29, 2023, the company’s operating cash flow grew 12.1% year-over-year to €1.41 billion ($1.54 billion).
FSNUY’s trailing-12-month EBITDA margin of 11.26% is 116.2% higher than the 5.21% industry average. Its trailing-12-month cash per share of $2.06 is 73.7% higher than the $1.18 industry average.
Street expects FSNUY’s revenue to grow 5.6% year-over-year to $25.91 billion for the fiscal year ending December 2024.
Shares of FSNUY increased 21.2% over the past year and 11.9% over the past month to close the last trading session at $7.43.
FSNUY’s POWR Ratings reflect its robust prospects. The stock has an overall rating of A, equating to a Strong Buy in our proprietary rating system.
FSNUY has an A grade for Value and a B for Stability and Quality. Within the Medical – Hospitals industry, it is ranked first out of 11 stocks.
In addition to the POWR Ratings stated above, one can access FSNUY’s additional Growth, Momentum, and Sentiment ratings here.
MiMedx Group, Inc. (MDXG)
MDXG specializes in developing and distributing placental tissue allografts for healthcare applications. The company’s patented PURION process produces allografts with retained biological properties. Products like EpiFix and AmnioFix are used in wound care, burn treatment, and surgical recovery.
On September 26, MDXG launched EPIEFFECT™, a new addition to its Advanced Wound Care solutions. This tri-layer configuration is designed for clinicians treating challenging wounds like diabetic foot ulcers and venous leg ulcers, providing a robust in-office allograft solution before hospital-based intervention.
The launch is part of MDXG’s commitment to evidence-based products tailored to customer demand, and EPIEFFECT has generated high anticipation in the market, strengthening the company’s position in the Wound & Surgical marketplace.
For the third quarter ended September 30, 2023, MDXG’s net sales grew 20.7% year-over-year to $81.71 million. The company generated a gross profit of $66.92 million, up 20.6% year-over-year.
Its adjusted EBITDA grew 640% from the previous-year quarter to $17.62 million, while its free cash flow improved significantly year-over-year to $12.16 million. Also, MDXG’s adjusted EPS amounted to $0.05, up 266.7% year-over-year.
The stock’s 3.02% trailing-12-month levered FCF margin is significantly higher than the industry average of 0.11%, while its trailing-12-month 1.71x asset turnover ratio is 343.8% higher than the industry average of 0.38x.
MDXG expects strong growth in full-year 2023, projecting a high teen percentage increase in net sales. The anticipated growth is driven by ongoing demand for the company’s Wound & Surgical products and the successful uptake of new launches over the past year.
Analysts expect MDXG’s revenue and EPS to grow 11.3% and 207.3% year-over-year to $355.8 million and $0.32 for the fiscal year ending December 2024. The company surpassed the EPS estimates in each of the trailing four quarters.
The stock has soared 118.6% over the past year and 154% year-to-date to close the last trading session at $7.06.
MDXG’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, equating to a Strong Buy in our proprietary rating system.
MDXG has an A grade for Growth and Quality and a B for Sentiment. Within the Medical – Devices & Equipment industry, it is ranked #2 out of 145 stocks.
To see MDXG’s additional POWR Ratings for Value, Momentum, and Stability, click here.
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CAH shares were trading at $104.49 per share on Monday morning, up $1.10 (+1.06%). Year-to-date, CAH has gained 38.36%, versus a 19.61% rise in the benchmark S&P 500 index during the same period.
About the Author: Kritika Sarmah
Her interest in risky instruments and passion for writing made Kritika an analyst and financial journalist. She earned her bachelor's degree in commerce and is currently pursuing the CFA program. With her fundamental approach, she aims to help investors identify untapped investment opportunities. More...
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