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Near-Term Outlook Bleak for Medical Dental Supplies Industry

Trina Mukherjee

The Zacks Medical - Dental Supplies industry primarily comprises designers, developers, manufacturers and marketers of dental consumables, dental laboratory products and dental specialty items. Some of the industry participants also provide practice management and clinical software, patient education systems, and office forms and stationery.

Some key players in this space include Becton Dickinson (BDX), McKesson Corporation (MCK), Patterson Companies, Inc. (PDCO), Cooper Companies (COO), DENTSPLY SIRONA (XRAY), Laboratory Corporation of America Holdings (LH) and Align Technology (ALGN).

Here are the three major industry themes:

  • Digital Influence: The latest technologies help dentists in carrying out minimally-invasive procedures that ensure precision and efficiency, thereby reducing patients’ trauma. The industry players actively promote digital workflows for general dentistry and dental specialties. Further, dental 3D printers are revolutionizing dentistry. These reduce time and cost through efficient utilization of orthodontics and dental practices. In fact, dental 3D printers are poised to become mainstream in 2020. For instance, DENTSPLY SIRONA has launched a single tooth replacement solution — Azento — in the United States to revolutionize digital-implant workflow in dental care.
     
  • AI & Robotics: AI has been shaping the dental industry for quite some time now. This decade is likely to see the rise of computing power, which has become more accessible and affordable for dental practitioners. It will transform the way dentists work and patients receive treatment, especially with the introduction of robot dentists. Robots are now able to perform minimally-invasive dental work like filling cavities and extracting teeth. A report by National Business Capital & Services suggests that AI dentistry had already become mainstream by 2019-end.
     
  • Reimbursement Challenges: The dental industry is facing increasing reimbursement challenges. Notably, some insurance companies have cut back on reimbursement rates in response to the stress to reduce the cost of dental coverage, resulting in reduced profit margins for dental practices. Consequently, insurance-driven patients pose a challenge for the industry.

Zacks Industry Rank Indicates Dull Prospects

The Zacks Medical Dental Supplies industry falls within the broader Zacks Medical sector.

It carries a Zacks Industry Rank #182, which places it in the bottom 28% of more than 250 Zacks industries.

The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all member stocks, indicates bleak near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.

Before we present a few dental supplies stocks that you may want to consider for your portfolio, let’s take a look at the industry’s recent stock-market performance and valuation picture.

Industry Underperforms S&P 500 and Sector

The industry has underperformed the Zacks S&P 500 composite and its own sector in the past year.

Stocks in this industry have collectively lost 12.9% compared with the Zacks Medical sector’s decline of 0.4%. Notably, the S&P 500 rallied 5.1% in the same timeframe.

One Year Price Performance



Industry’s Current Valuation

On the basis of the forward 12-month price-to-earnings (P/E) ratio, which is commonly used for valuing medical stocks, the industry is currently trading at 18.76X compared with the S&P 500’s 22.25X and the sector’s 22.89X.

Over the last five years, the industry has traded as high as 19.10X and as low as 13.7X, with the median being at 16.56X, as the charts below show.

Price-to-Earnings Forward Twelve Months (F12M)




Price-to-Earnings Forward Twelve Months (F12M)



Bottom Line

Per a report by ResearchAndMarkets, the global dental market will reach a worth of $35.7 billion by 2023 at a CAGR of 5.6%. Despite reimbursement challenges, factors like increasing demand for oral hygiene services, technological advancements like laser dentistry, aging population, higher disposable income and changing lifestyles will drive the market.

Moreover, it is important to mention here that with the coronavirus crisis intensifying since late February, elective procedures and other non-emergency procedures have been impacted. This, in turn, will weigh on the profitability of dental supplies industry.

Here are three stocks that have a Zacks Rank #3 (Hold), which investors can keep a watch on. These stocks are also well positioned to grow in the near term. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

AmerisourceBergen Corporation (ABC): AmerisourceBergen is one of the world’s largest pharmaceutical services companies, which focuses on providing drug distribution and related services to reduce health care costs and improve patient outcomes.

For this Chesterbrook, PA-based company, the Zacks Consensus Estimate for fiscal 2020 revenues indicate an improvement of 3.8%.

Price and Consensus: ABC



Henry Schein, Inc. (HSIC): Henry Schein is a solutions company for health care professionals, provides health care products and services to office-based dental practitioners and laboratories, physician practices, government, institutional health care clinics, and other alternate care clinics worldwide.

For this Melville, NY-based company, the estimated long-term earnings growth rate is at 6.3%.

Price and Consensus: HSIC



Cardinal Health, Inc. (CAH): Cardinal Health is a nation-wide drug distributor and provider of services to pharmacies, healthcare providers and manufacturers.

For this Dublin, OH-based company, the Zacks Consensus Estimate for fiscal 2020 revenues suggest growth of 5.4%.

Price and Consensus: CAH




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DENTSPLY SIRONA Inc. (XRAY) : Free Stock Analysis Report
 
Patterson Companies, Inc. (PDCO) : Free Stock Analysis Report
 
McKesson Corporation (MCK) : Free Stock Analysis Report
 
Laboratory Corporation of America Holdings (LH) : Free Stock Analysis Report
 
Henry Schein, Inc. (HSIC) : Free Stock Analysis Report
 
The Cooper Companies, Inc. (COO) : Free Stock Analysis Report
 
Cardinal Health, Inc. (CAH) : Free Stock Analysis Report
 
Becton, Dickinson and Company (BDX) : Free Stock Analysis Report
 
Align Technology, Inc. (ALGN) : Free Stock Analysis Report
 
AmerisourceBergen Corporation (ABC) : Free Stock Analysis Report
 
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