Henry Schein, Inc. HSIC recently announced that it has completed the earlier-announced joint venture (JV) with Internet Brands, a KKR portfolio company, in a bid to fortify its Dental business. The companies have named the joint venture Henry Schein One. However, financial terms of the deal have been kept under wraps.
Henry Schein One has integrated the portfolio of practice management systems under its dental practice management software company — Henry Schein Practice Solutions — with Internet Brands’ web-based software applications. The new company is expected to deliver integrated dental technology to help improve practice management, marketing as well as patient communication.
Per Henry Schein, the newly formed JV will combine Henry Schein Practice Solutions' products and services like Dentrix, Dentrix Ascend, Easy Dental and TechCentral, Henry Schein's international dental practice management systems including Software of Excellence, Logiciel Julie, InfoMed, Exan and Labnet with the dental businesses of Internet Brands including web-based solutions such as Demandforce, Sesame Communications, Officite and DentalPlans.com.
The combined entity registered pro-forma 2017 sales of approximately $400 million. Of this, approximately $100 million is drawn from Internet Brands’ dental businesses. Excluding the impact of around $4.5 million one-time transfer taxes, Henry Schein had earlier anticipated the deal to be immaterial to the rest of 2018 earnings per share and be accretive to its bottom line thereafter. Furthermore, annual synergies between $20 million and $30 million are expected to be realized by the end of the third year of the joint venture initiation.
Dental Business — Major Growth Driver
Henry Schein’s Dental business accounts for 48.1% of total revenues in the last reported quarter. Accordingly, it has been leaving no stone unturned to strengthen its foothold on this business. Moreover, Henry Schein signed distribution agreements with DENTSPLY SIRONA Inc. (XRAY) only last year, to distribute the latter's entire product line.
We are also encouraged by Henry Schein’s reliance on part of its strategic plan, which is digital dentistry. The company is busy promoting digital workflows for general dentistry as well as dental specialties. Per management, the company’s solid performance can be attributed to its continued focus on offering a diversified portfolio and value-added services along with a favorable end market. Thus, we believe that Henry Schein’s latest tie-up is a strategic leap taken by the company.
Market Potential
Per the company, a rise in oral healthcare expenditure within the dental industry, is predicted in tandem with the increase in middle-aged population (45 years and above). Moreover, Henry Schein is upbeat about the expected growth in dental insurance coverage along with lower insurance reimbursement rates, which lead to a frequent need for new technologies. We believe, this bullish sentiment will boost demand for Henry Schein’s products and services.
Moreover, per a Transparency Market Research report, global dental practice management software market is likely to witness a CAGR of 11% between 2017 and 2025. Given its huge market potential, we perceive this latest development to help Henry Schein cash in on the bountiful opportunities in the market.
Share Price Movement
Over the past three months, Henry Schein has outperformed the broader industry. The stock has gained 7.1% compared with the industry’s increase of 6.4%.
Zacks Rank & Key Picks
Henry Schein currently carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the broader medical space are Genomic Health GHDX, Abiomed ABMD and Stryker Corporation SYK.
Genomic Health has a skyrocketing expected earnings growth rate of 187.5% for the to-be-reported quarter. The stock sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Abiomed has a projected long-term earnings growth rate of 27% and a Zacks Rank of 1.
Stryker has an estimated long-term earnings growth rate of 9.7%. The stock carries a Zacks Rank #2 (Buy).
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