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Henry Schein (HSIC) Global Dental Arm Rebounds Amid Cost Woes

Henry Schein, Inc. HSIC has been gaining from robust first-quarter performance of its three operating businesses. Further, growth within Henry Schein One continues to be driven primarily by a recovery in patient traffic at dental offices. Yet, rising operating expenses and stiff competition raise apprehension.

The company currently carries a Zacks Rank #3 (Hold).

Over the past year, Henry Schein has outperformed the industry. The stock has lost 3.6% compared with the industry's 12.8% decline.

Henry Schein exited the first quarter of 2022 on a bullish note with better-than-expected results. The company saw robust performances by all three of its operating businesses. The company’s international performance was also impressive. First-quarter growth in the dental business was driven by strong global equipment sales as dentists continued to invest in their practices and consumable merchandise sales.

Growth within Henry Schein One continues to be driven primarily by a recovery in patient traffic in dental offices. Further, expansion of the gross margins bodes well. Widespread network and channel mix along with favorable long-term trends in the dental business look encouraging. A strong solvency position is a plus.

During the first quarter, Henry Schein noted that in-patient traffic picked up at a very steady pace as the quarter progressed, and COVID-19 restrictions were relaxed in certain parts of Europe. The most recent American Dental Association data shows current patient traffic at 90% of the pre-pandemic level.

Global dental consumable merchandise internal sales increased 1.3% in the first quarter compared with the prior year, with solid dental consumable merchandise sales growth in the United States, Canada, Australia, New Zealand, Brazil and Asia. North America dental consumable merchandise internal sales in local currencies increased 2.6% year over year. Henry Schein also registered strong internal sales growth of 10.1% in international dental equipment.

On the flip side, during the first quarter, Henry Schein’s selling, general and administrative expenses rose 11.1%. Adjusted operating margin contracted 32 basis points (bps) year over year to 9.2%. The escalating costs are building pressure on the bottom line. Moreover, sales of PPE products declined in double digits during the first quarter compared with a strong first quarter last year. Further, considering the recent trends, the company estimates sales of COVID-19 test kits to be 15% to 25% lower than in 2021.

Further, the U.S. healthcare products and service distribution industry is highly competitive and consists principally of national, regional and local distributors. In the North American dental products market, the company faces stiff competition from Patterson Dental business of Patterson Companies Inc. and Benco Dental Supply.

Key Picks

A few better-ranked stocks in the broader medical space are Alkermes plc ALKS, AMN Healthcare Services, Inc. AMN and Medpace Holdings, Inc. MEDP.

Alkermes has an estimated long-term growth rate of 25.1%. Alkermes’ earnings surpassed estimates in the trailing four quarters, the average surprise being 350.5%. It currently carries a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Alkermes has outperformed the industry in the past year. ALKS has gained 11% against the industry’s 46% decline in the said period.

AMN Healthcare has a long-term earnings growth rate of 1.1%. The company surpassed earnings estimates in the trailing four quarters, delivering a surprise of 15.6%, on average. It currently flaunts a Zacks Rank #1.

AMN Healthcare has outperformed its industry in the past year. AMN has gained 0.7% against the industry’s 53.5% fall.

Medpace has a historical growth rate of 27.3%. Medpace’s earnings surpassed estimates in the trailing four quarters, the average surprise being 17.1%. It currently has a Zacks Rank #2 (Buy).

Medpace has outperformed its industry in the past year. MEDP has declined 26% compared with the industry’s 53.5% fall.


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Alkermes plc (ALKS): Free Stock Analysis Report
 
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