On Dec 14, 2015, we issued an updated research report on New York-based healthcare services provider Henry Schein, Inc. HSIC. The company serves office-based dental, medical and animal health practitioners, dental laboratories, government as well as institutional health care clinics and other alternate-care sites.
Henry Schein ended third-quarter 2015 on a promising note, exceeding the Zacks Consensus Estimate on both the top and bottom lines. However, management pulled down the upper level of its earlier provided EPS guidance range anticipating unfavorable currency fluctuation. This is a tad disappointing.
Henry Schein’s revenue growth has been consistently supported by niche acquisitions. During the fourth quarter, the company acquired a majority interest in Jorgen Kruuse to extend its direct presence in Denmark, Norway, and Sweden – the Nordic animal health market. On the closure of the Kruuse acquisition, Henry Schein’s Animal Health business should expand to 23 countries including U.S., Australia, New Zealand, Canada, China, Malaysia, and 17 other countries in Europe, in line with prior expectations.
In Nov 2015, Henry Schein announced its plans to acquire an 80.1% interest in Vetstreet – a leading provider of marketing solutions and health information analytics to veterinary clinics and animal health manufacturers. The company expects this transaction to meaningfully complement its U.S. Animal Health business and be accretive to its earnings by a penny to 2 cents in 2017 and beyond.
Further, the company remains committed to delivering incremental returns to investors, thereby leveraging earnings power. During the quarter under review, the company bought back approximately 261,000 shares for $37.7 million and was left with $149 million worth of future repurchase authorization.
On the flip side, unfavorable foreign currency exchange continued to wreak havoc, significantly impacting Henry Schein’s third quarter results. Currency woes reduced the quarter’s sales growth by 7.1% and had a negative impact of 6 cents on EPS. Moreover, the international dental business was under considerable pressure due to weakness in capital spending trends in some parts of Europe like the Netherlands and the U.K. (outside London) as well as Australia. A tough competitive landscape and pricing pressure also weigh on Henry Schein’s stock.
Currently, Henry Schein carries a Zacks Rank #3 (Hold).
Key Picks in the Sector
Some better-ranked medical stocks are Masimo Corporation MASI, Natus Medical Inc. BABY and Steris Plc STE. All the three stocks hold a Zacks Rank #1 (Strong Buy).
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