Despite the volatility brought about by different economic cycles, the profit margins of the medical industry remain stable, given the consistent demand for its products and services. The sector looks well-positioned for solid growth due to growing medical needs and the adoption of the latest technologies.
Amid this backdrop, it could be wise to buy fundamentally strong medical stocks GSK plc (GSK), National HealthCare Corporation (NHC), and MiMedx Group, Inc. (MDXG). These stocks are all rated A (Strong Buy) in our proprietary POWR Ratings system.
Before diving deeper into the fundamentals of these stocks, let’s discuss what’s shaping the medical industry’s prospects.
The medical industry is crucial in enhancing people's quality of life. The U.S. national healthcare expenditure is estimated to reach $6.2 trillion by 2028.
Healthcare expenses have been growing every year, and spending on healthcare is projected to rise significantly over the long term. The Centers for Medicare and Medicaid Services forecasted a 5.4% annual growth in U.S. healthcare spending until 2031.
The industry is adopting new medical technologies to enhance the medical service experience of patients. The global medical devices market is projected to grow at a CAGR of 5.8%, reaching $996.93 billion by 2032, driven by increasing healthcare expenditures.
Furthermore, a rapidly aging population, the rise of infectious diseases, and the increase in chronic diseases are putting the focus on personalized medicine and technological advancements, positioning the medical industry for robust growth. The medical industry is embracing technology, including AI and gene editing, to improve disease detection and treatment, leading to more positive outcomes.
Investors’ interest in medical names is evident from the SPDR Select Sector Fund – Health Care ETF’s (XLV) 6.5% returns over the past three months.
Let’s assess the fundamentals of the three featured medical stocks.
GSK plc (GSK)
Headquartered in Brentford, United Kingdom, GSK operates in the research, development, and manufacturing of vaccines and specialty medicines in the United Kingdom, the U.S., and internationally. The company operates through four segments: Pharmaceuticals, Pharmaceuticals R&D, Vaccines, and Consumer Healthcare.
On January 9, 2024, GSK announced the acquisition of Aiolos Bio for a $1 billion upfront payment and potential milestone payments totaling up to $400 million. This strategic move expands GSK's respiratory pipeline with AIO-001, a phase II-ready, long-acting antibody targeting the TSLP pathway, offering potential benefits for asthma patients.
On December 20, 2023, GSK announced an exclusive license agreement with Hansoh Pharma for HS-20093, a B7-H3 targeted antibody-drug conjugate showing promising clinical activity in lung cancer. GSK plans to initiate phase I trials for HS-20093 outside of China in 2024, following a previous agreement for Hansoh’s HS-20089 focused on gynecologic cancers.
In terms of the trailing-12-month EBITDA margin, GSK’s 30.98% is 485.4% higher than the 5.29% industry average. Likewise, its 0.49x trailing-12-month asset turnover ratio is 25.7% higher than the 0.39x industry average. Its 25.83% trailing-12-month EBIT margin is considerably higher than the 0.81% industry average.
GSK’s turnover for the third quarter that ended September 30, 2023, increased 4.1% year-over-year to £8.15 billion ($10.31 billion). Its adjusted operating profit rose 6.4% over the prior-year quarter to £2.77 billion ($3.51 billion).
For the same quarter, the company’s adjusted profit before taxation rose 7.8% year-over-year to £2.62 billion ($3.32 billion). Also, its adjusted earnings per share from continuing operations was 50.40p, up 7.5% over the prior-year quarter.
Street expects GSK’s EPS and revenue for the quarter ended December 31, 2023, to increase 20.3% and 4.5% year-over-year to $0.76 and $9.54 billion, respectively. It surpassed Street EPS estimates in each of the trailing four quarters. Over the past six months, the stock has gained 15.5% to close the last trading session at $39.88.
GSK’s POWR Ratings reflect strong prospects. It has an overall rating of A, translating to a Strong Buy in our proprietary system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It is ranked #8 out of 161 stocks in the Medical - Pharmaceuticals industry. It has an A grade for Value and a B for Sentiment and Quality. Click here to see GSK’s ratings for Growth, Momentum, and Stability.
National HealthCare Corporation (NHC)
NHC operates, manages, and provides services to skilled nursing facilities, assisted living facilities, independent living facilities, homecare and hospice agencies, and a behavioral health hospital.
In terms of the trailing-12-month EBIT margin, NHC’s 3.82% is 370.7% higher than the 0.81% industry average. Likewise, its 0.86x trailing-12-month asset turnover ratio is 120.1% higher than the 0.39x industry average. Moreover, its 3.36% trailing-12-month levered FCF margin is 905% higher than the 0.33% industry average.
NHC’s net operating revenues and grant income for the third quarter that ended September 30, 2023, increased 6.5% year-over-year to $288.49 million. Its income from operations came in at $13.03 million, up 219.4% year-over-year. Moreover, the company’s non-GAAP net income and non-GAAP EPS rose 70.2% and 72% year-over-year to $13.25 million and $0.86, respectively.
Over the past six months, NHC’s stock has gained 66.6% to close the last trading session at $96.09.
NHC’s positive outlook is reflected in its POWR Ratings. It has an overall rating of A, equating to a Strong Buy in our proprietary rating system.
It has an A grade for Growth and a B for Stability and Quality. It is ranked #3 out of 67 stocks in the Medical - Services industry. To see NHC’s Value, Momentum, and Sentiment ratings, click here.
MiMedx Group, Inc. (MDXG)
MDXG develops and distributes placental tissue allografts for various sectors of healthcare. It processes the human placental tissues utilizing its patented and proprietary PURION process to produce allografts that retain the tissue's inherent biological properties and regulatory proteins.
On September 26, 2023, MDXG introduced EPIEFFECT, a new solution in its Advanced Wound Care lineup. This addition enhances the company's core offerings for healthcare professionals addressing challenging wounds like diabetic foot ulcers and venous leg ulcers, along with other common conditions.
In terms of the trailing-12-month levered FCF margin, MDXG’s 3.02% is 802% higher than the 0.33% industry average. Likewise, its 82.15% trailing-12-month gross profit margin is 44.2% higher than the 56.97% industry average. Moreover, its 6.62% trailing-12-month EBITDA margin is 25.1% higher than the 5.29% industry average.
MDGX’s net sales for the third quarter that ended September 30, 2023, increased 20.7% year-over-year to $81.71 million. Its gross profit rose 20.6% over the prior-year quarter to $66.92 million. Likewise, its adjusted EBITDA came in at $17.62 million, up 640% year-over-year.
The company’s adjusted net income was $8.03 million, compared to an adjusted net loss of $1.70 million in the year-ago quarter. In addition, its adjusted earnings per share came in at $0.05, compared to an adjusted loss per share of $0.03 in the year-ago quarter.
Analysts expect MDXG’s revenue for the quarter ended December 31, 2023, to increase 14.5% year-over-year to $85.15 million. Likewise, its EPS for the fiscal 2024 is expected to increase 207.3% year-over-year to $0.32. It surpassed the consensus EPS estimates in each of the trailing four quarters. Over the past nine months, the stock has gained 144.1% to close the last trading session at $8.08.
MDXG’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of A, which translates to a Strong Buy in our proprietary rating system.
It has an A grade for Growth and Quality and a B for Sentiment. Within the Medical - Devices & Equipment industry, it is ranked #2 out of 145 stocks. To see MDXG’s Value, Momentum, and Stability rating, click here.
What To Do Next?
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GSK shares were trading at $39.72 per share on Wednesday afternoon, down $0.16 (-0.40%). Year-to-date, GSK has gained 7.18%, versus a -1.00% rise in the benchmark S&P 500 index during the same period.
About the Author: Abhishek Bhuyan
Abhishek embarked on his professional journey as a financial journalist due to his keen interest in discerning the fundamental factors that influence the future performance of financial instruments.
3 A-Rated Medical Stocks to Watch and Buy StockNews.com
