The healthcare industry enjoys an inelastic demand for medical products and services and has been coping well, even though numerous unfavorable macro variables have impacted the economy.
Through research and development (R&D), the healthcare industry has consistently adopted new strategies and invented advanced technologies to fulfill its ever-growing demand amid an aging population, the growing prevalence of chronic diseases, and increasing health awareness.
The pharmaceutical industry is anticipated to surpass $1 trillion by 2023 due to increased R&D efforts and drug approvals, fueling the healthcare industry's expansion.
Furthermore, increased healthcare spending should boost the industry’s growth. The U.S. Department of Health and Human Services (HHS) would receive $120.70 billion more in funding under the Consolidated Appropriations Act of 2023. Additionally, the National Institutes of Health (NIH) is to get $47.50 billion to enhance the financing of research into cancer, Alzheimer's disease, and health inequities.
Given the industry’s growth prospects, fundamentally strong medical stock Premier, Inc. (PINC) could be an ideal addition to one’s portfolio. However, given weak fundamentals and bleak growth prospects, Teladoc Health, Inc. (TDOC) might be best avoided now.
Stock to Buy:
Premier, Inc. (PINC)
PINC is a leading healthcare improvement company. It operates through two segments, Supply Chain Services, and Performance Services. The organization provides its members with access to various goods and services, including medical and surgical supplies, medications, clinical engineering, and workforce solutions.
On October 13, PINC’s subsidiary Contigo Health, LLC, a provider of comprehensive healthcare services, finalized the acquisition of key assets from TRPN Direct Pay, Inc. and Devon Health, Inc. Contracts with more than 900,000 service providers covering 4.10 million U.S. locations have been purchased, along with licenses for TRPN's cost-containment technologies.
The company expects the acquisition to add $40 million to $60 million in annual net revenue and 40% - 50% to adjusted EBITDA margin if fully scaled in the future three to five years.
For the fiscal 2023 first quarter that ended September 30, PINC’s revenue from software licenses, other services, and support increased 8% year-over-year to $105.01 million. As of September 30, 2022, the company’s cash and cash equivalents stood at $176.63 million compared to $86.14 million as of June 30, 2022.
Also, total current assets stood at $738.96 million compared to $645.57 million as of June 30, 2022.
The consensus EPS estimate of $0.69 for the fiscal quarter ending March 2023 indicates a 20.2% year-over-year improvement. Likewise, the consensus revenue estimate of $363.63 million for the same quarter indicates a rise of 4.5% year-over-year. The stock has gained 5% over the past month to close the last trading session at $35.01.
PINC’s POWR Ratings reflect its strong outlook. The stock has an overall rating of A, equating to a Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
The stock has a B grade for Quality and Value. Within the Medical - Services industry, it is ranked #6 of 77 stocks.
Beyond what we stated above, we also have PINC’s ratings for Stability, Growth, Sentiment, and Momentum. Get all PINC ratings here.
Stock to Avoid:
Teladoc Health, Inc. (TDOC)
TDOC offers virtual healthcare services across the globe. It provides a range of treatments and products that address non-urgent, sporadic, chronic, and complex medical issues. In addition to providing services to individual members, the company offers services to employers, health plans, hospitals, and health systems.
Moore Kuehn, PLLC, a securities and shareholder law firm located on Wall Street, was investigating whether TDOC or its officers and directors have breached their fiduciary obligations.
Moreover, TDOC’s insiders sold $168 million worth of the company’s stock between February 11, 2021, and July 27, 2022, which might have compounded these potential fiduciary breaches.
For the third quarter of the fiscal year 2022 ended September 30, 2022, TDOC’s total expenses increased 17.3% year-over-year to $683.13 million, and its loss from operations widened 18.4% from the prior year’s quarter to $71.73 million.
In addition, as of September 30, 2022, the company’s total assets stood at $8.10 billion compared to $17.73 billion as of December 31, 2021.
For the fourth quarter of fiscal 2022 (ended December 2022), analysts expect TDOC to report a loss per share of $0.18. Moreover, the company is expected to report a loss per share of $0.45 in the first quarter of fiscal 2023 (ending March 2023). Shares of TDOC have slumped 14.7% over the past month and 72.7% over the past year to close the last trading session at $22.29.
TDOC’s poor prospects are also apparent in its POWR Ratings. The stock has an overall rating of D, equating to Sell in our proprietary rating system.
The stock has a D grade for Sentiment and Momentum. Within the same industry, it ranks #76 of 77 stocks.
In addition to the POWR Rating grades stated above, we have also given TDOC ratings for Stability, Value, Quality, and Growth. Get all TDOC ratings here.
PINC shares were trading at $35.07 per share on Monday morning, up $0.06 (+0.17%). Year-to-date, PINC has gained 0.26%, versus a 2.75% rise in the benchmark S&P 500 index during the same period.
About the Author: Aanchal Sugandh
Aanchal's passion for financial markets drives her work as an investment analyst and journalist. She earned her bachelor's degree in finance and is pursuing the CFA program. She is proficient at assessing the long-term prospects of stocks with her fundamental analysis skills. Her goal is to help investors build portfolios with sustainable returns.
1 Medical Stock to Buy in 2023 and 1 to Avoid StockNews.com
