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Henry Schein Sales Drop on Coronavirus Woes, Costs Rise

Zacks Equity Research

On May 22, we issued an updated research report on Henry Schein, Inc. HSIC. The company is well positioned to gain from its extensive global foothold and diverse channel mix. However, escalating costs and expenses are putting pressure on the bottom line. Henry Schein carries a Zacks Rank #4 (Sell).

Over the past six months, Henry Schein has underperformed its industry. The stock has lost 16.6% compared with the industry's 1.9% decline.

The coronavirus pandemic has severely dented the company’s dental revenues since March. A dismal performance by the company's biggest operating segment, Dental (down 4.6%) on suspension of non-emergency procedures in response to the pandemic, is concerning. We are also disappointed with the contraction in both margins. Its decision to refrain from providing a guidance is concerning as well.

Henry Schein, Inc. Price

Henry Schein, Inc. Price

Henry Schein, Inc. price | Henry Schein, Inc. Quote

Governments and insurance companies continue to look for ways to contain the rising cost of healthcare, which is affecting Henry Schein’s financial operations. A weak solvency and capital structure is also deterring. Other factors like impact of group purchasing organizations and a stiff competitive landscape are bothersome.

On a positive note, Henry Schein exited the first quarter of 2020 with better-than-expected results despite the coronavirus pandemic. The company registered strong momentum in dental consumable merchandise and equipment internal sales in North America as well as internationally till early March, before being adversely impacted by the suspension of non-emergency procedures in response to the coronavirus outbreak.

Henry Schein also seems to be upbeat about its dental technology business, Henry Schein One. Despite business disruptions in the first quarter due to the coronavirus outbreak, the Henry Schein One dental software business holds potential to rebound.

Other products within the Henry Schein One portfolio like the beta version of its Tech Dentrix and Dentrix G7.3 are likely to maintain momentum.

Key Stocks

Some better-ranked stocks from the broader medical space are Aphria Inc. APHA, Surmodics, Inc. SRDX and Owens Minor, Inc. OMI.

Aphria’s long-term earnings growth rate is projected at 24.6%. It currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Surmodics’ long-term earnings growth rate is estimated at 10%. The company presently sports a Zacks Rank #1.

Owens Minor’s long-term earnings growth rate is estimated at 8.3%. It currently carries a Zacks Rank #2.

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