The medical sector is expected to grow due to rising chronic diseases, aging population, health awareness, innovation, and technological advancements. Given the industry’s growth prospects, investors could consider buying fundamentally sound medical stocks Medtronic plc (MDT), Haemonetics Corporation (HAE) and HealthStream, Inc. (HSTM) for solid returns.
Before diving deeper into their fundamentals, let’s discuss what’s happening in the medical industry.
Technological improvements in healthcare have led to online prescription ordering, automated patient post-care, tele-radiology innovation, EHRs organization, AI-driven robotic procedures, and online consultations. These advancements have increased efficiency and convenience in healthcare delivery and improved patient outcomes.
According to Statista, the worldwide pharmaceuticals market is predicted to grow at a 5.8% CAGR to reach $1.48 trillion by 2028. Oncology drugs are the largest segment, with a forecasted market volume of $188.20 billion in 2023.
In addition, the medical device market is predicted to expand due to rising investments and breakthrough developments. The global medical devices market is expected to grow at a 11.4% CAGR until 2030.
Investors’ interest in medical stocks is evident from Vanguard Health Care ETF (VHT) 1.8% returns over the past month.
Considering these conducive trends, let’s look at the fundamentals of the three medical stocks.
Medtronic plc (MDT)
Headquartered in Dublin, Ireland, MDT develops, manufactures, distributes, and sells device-based medical therapies to hospitals, physicians, clinicians, and patients worldwide. It operates through four segments: Cardiovascular Portfolio, Neuroscience Portfolio, Medical-Surgical Portfolio, and Diabetes Operating Unit.
MDT’s trailing-12-month non-GAAP P/E of 14.64x is 20.9% lower than the industry average of 18.50x. Its trailing-12-month Price/Sales of 3.11x is 13.7% lower than the industry average of 3.60x.
MDT’s trailing-12-month levered FCF margin of 14.93% is significantly higher than the 0.11% industry average. Its trailing-12-month EBITDA margin of 26.41% is 405.8% higher than the 5.22% industry average.
MDT’s net sales for its fiscal 2024 first quarter ended July 28, 2023, increased 4.5% from the prior-year period to $7.70 billion. The company’s non-GAAP operating profit came in at $1.27 billion, indicating a 12.7% rise from the year-ago period.
Its non-GAAP net income increased 6.3% year-over-year to $1.60 billion. MDT’s non-GAAP EPS came in at $1.20, indicating a 6.2% year-over-year improvement.
Street expects MDT’s revenue to increase 3% year-over-year to $32.17 billion for the year ending April 2024. Its EPS is expected to come in at $5.13 for the same period. It has surpassed EPS estimates in all four trailing quarters. Over the past month, the stock has gained 3.4% to close the last trading session at $75.16.
MDT’s POWR Ratings reflect this promising outlook. The stock has an overall rating of B, equating to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
MDT also has a B grade for Sentiment, Value, Growth and Stability. It is ranked #5 out of 145 stocks in the Medical – Devices & Equipment industry. Click here to see the additional POWR Ratings for Quality and Momentum for MDT.
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.
HAE’s forward non-GAAP PEG multiple of 1.55 is 24.8% lower than the industry average of 2.06. Its forward Price/Sales multiple of 3.31% is 8% lower than the industry average of 3.60.
HAE’s trailing-12-month levered FCF margin of 15.08% is significantly higher than the 0.11% industry average. Its trailing-12-month EBITDA margin of 23.29% is 346.1% higher than the 5.22% industry average.
During its fiscal second quarter, ended September 30, HAE’s net revenues increased 7% year-over-year to $318.18 million. Its gross profit grew 8% from its year-ago value to $170.51 million.
Its total current assets came in at $865.74 million for the period that ended September 30, 2023, compared to $769.72 million for the period that ended April 1, 2023. Also, its total assets came in at $2.01 billion, compared to $1.93 billion for the same period.
The consensus revenue estimate of 1.27 billion for the year ending March 2024 represents an 8.7% increase year-over-year. Its EPS is expected to grow 28.4% year-over-year to $3.89 for the same period. It has surpassed EPS estimates in all four trailing quarters. HAE’s shares have gained 5.4% year-to-date to close the last trading session at $82.93.
HAE’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which equates to a Buy in our proprietary rating system.
It is ranked #4 in the same industry. It has a B grade for Stability, Sentiment and Quality. To see additional HAE’s ratings for Value, Growth and Momentum, click here.
HealthStream, Inc. (HSTM)
HSTM provides platform-delivered workforce solutions for healthcare organizations and healthcare professionals. The Company has two segments: Workforce Solutions and Provider Solutions.
HSTM’s forward EV/Sales of 2.57x is 19.7% lower than the industry average of 3.20x. Its forward EV/EBITDA of 11.85x is 7.2% lower than the industry average of 12.77x.
HSTM’s trailing-12-month levered FCF margin of 15.82% is significantly higher than the 0.11% industry average. Its trailing-12-month EBITDA margin of 13.10% is 151% higher than the 5.22% industry average.
For the fiscal third quarter ended September 30, 2023, HSTM’s net revenues increased 4.6% year-over-year to $70.34 million. Its operating income rose 104.2% over the prior year quarter to $4.86 million. The company’s net income increased 5.5% year-over-year to $3.87 million. Also, its EPS came in at $0.13, representing an increase of 8.3% year-over-year.
Analysts expect HSTM’s revenue to increase 5.1% year-over-year to 280.29 million for the year ending December 2023. Its EPS is expected to grow 43% year-over-year to $0.44 for the same period. It has surpassed EPS estimates in all four trailing quarters. Shares of HSTM has gained 18.3% over past three months to close the last trading session at $25.49.
It’s no surprise that HSTM has an overall B rating, equating to a Buy in our POWR Ratings system. It has a B grade for Stability, Sentiment and Quality. It is ranked #4 out of 66 stocks in the Medical – Services industry.
Beyond what is stated above, we’ve also rated HSTM for Growth, Value and Momentum. Get all HSTM ratings here.
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MDT shares were trading at $77.96 per share on Tuesday morning, up $2.80 (+3.73%). Year-to-date, MDT has gained 2.84%, versus a 19.69% rise in the benchmark S&P 500 index during the same period.
About the Author: Rashmi Kumari
Rashmi is passionate about capital markets, wealth management, and financial regulatory issues, which led her to pursue a career as an investment analyst. With a master's degree in commerce, she aspires to make complex financial matters understandable for individual investors and help them make appropriate investment decisions. More...
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