With the flourishing global economies and progressive healthcare infrastructure, the medical industry stands at a strategic vantage point to capture emerging opportunities.
Amid the ongoing transformation in the healthcare sector, investors could consider investing in quality medical stocks Cardinal Health Inc. (CAH), MiMedx Group, Inc. (MDXG), and Nature’s Sunshine Products, Inc. (NATR) with the potential to enhance profit.
The rising elderly demographic, an increasing prevalence of chronic Non-Communicable Diseases (NCDs), and growing health consciousness present the healthcare sector with significant growth potential as it seeks to meet the escalating demand for medical services.
The advent of colder months in the U.S. and a probable surge in influenza and COVID-19 infection rates intensifies the requirement for enhanced medical interventions. The healthcare services market is projected to reach $21.06 trillion by 2030, growing at a CAGR of 8.3% by 2030.
Simultaneously, the global digital transformation is paving the way for numerous possibilities within the digital health sphere. Cutting-edge breakthroughs in telemedicine, surgical automation, wearable health-tech devices, and health informatics will significantly overhaul the sector's landscape. The digital health market is projected to expand at a CAGR of 23.3% to reach $1.97 trillion by 2030.
Remaining at the forefront of technological innovation remains a priority for the healthcare industry. With the global medical devices market projected to reach $996.93 billion by 2032, expanding at a CAGR of 5.8%, it is evident that the industry is maximizing the potential of these technological advancements for its growth.
With these favorable trends in mind, let's delve into the fundamentals of the three medical stock picks.
Cardinal Health Inc. (CAH)
CAH is a global healthcare services and products company that provides customized solutions for various healthcare entities. It operates in pharmaceutical and medical segments and distributes a wide range of products, offers pharmacy management services, and manufactures medical devices.
On November 9, CAH debuted SmartGown™ EDGE, a breathable surgical gown with ASSIST™ Instrument Pockets in the U.S., offering surgical teams safe and convenient access to frequently used instruments.
Developed with Mayo Clinic, the gown is rated AAMI level 4 for high fluid exposure protection. It is designed to improve efficiency and safety in the operating room by minimizing the need for instrument handoffs or exchanges, addressing challenges faced by surgical teams. The new product is anticipated to add to the company’s revenue stream.
On November 14, CAH declared a quarterly dividend of $0.5006 per share out of the company’s capital surplus. The dividend is payable on January 15, 2024. Its annual dividend of $2 yields 1.90% on the prevailing price level, compared to a four-year dividend yield of 3.28%.
The company initiated a $500 million accelerated share repurchase program in the first quarter, completed in October.
CAH’s trailing-12-month asset turnover ratio of 4.83x is significantly higher than the industry average of 0.38x, while its trailing-12-month levered FCF margin of 1.48% is significantly higher than the industry average of 0.11%.
In the fiscal first quarter that ended September 30, 2023, CAH’s revenue and gross margin increased 10.4% and 9.5% year-over-year to $54.76 billion and $1.77 billion, respectively. Moreover, adjusted free cash flow stood at $995 million, up 190.9% year-over-year.
For the same quarter, non-GAAP net earnings and non-GAAP EPS stood at $433 million and $1.73, up 32% and 44.2% from the prior-year quarter, respectively.
The company raised its fiscal 2024 guidance range for non-GAAP EPS attributable to CAH from $6.50-$6.75 to $6.75-$7.
CAH’s revenue and EPS are expected to grow 10.7% and 20.3% year-over-year to $57 billion and $1.59, respectively, for the fiscal second quarter ending December 2023. The company surpassed the consensus revenue estimates in three of the trailing four quarters and EPS estimates in each of the trailing four quarters, which is impressive.
Shares of CAH increased 36.9% year-to-date and 22.5% over the past six months to close the last trading session at $105.26.
CAH’s POWR Ratings reflect this sound 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, with each factor weighted to an optimal degree.
CAH has an A grade for Growth and a B for Value. Within the Medical – Services industry, it is ranked #2 out of 66 stocks.
Click here for CAH’s additional Momentum, Stability, Sentiment, and Quality ratings.
MiMedx Group, Inc. (MDXG)
MDXG develops and distributes placental tissue allografts for various sectors of healthcare. The company operates through two segments: Wound and Surgical and Regenerative Medicine.
In September, MDXG launched EPIEFFECT, the company’s latest addition to its Advanced Wound Care (AWC) solutions portfolio. EPIEFFECT expands the company’s core AWC offering for clinicians treating acute and chronic, hard-to-heal wounds such as diabetic foot ulcers and venous leg ulcers, among other common conditions.
MDXG’s trailing-12-month asset turnover ratio of 1.71x is 343.8% higher than the industry average of 0.38x. Its trailing-12-month gross profit and EBITDA margins of 82.15% and 6.62% are 46.7% and 26.8% higher than the industry averages of 55.99% and 5.22%, respectively.
In the fiscal third quarter that ended September 30, 2023, MDXG’s net sales and gross profit increased 20.7% and 20.6% year-over-year to $81.71 million and $66.92 million, respectively. Moreover, free cash flow stood at $12.16 million, up significantly year-over-year.
For the same quarter, adjusted net income came at $8.03 million, compared to an adjusted net loss of $1.70 million in the prior year quarter. Also, its adjusted earnings per share came in at $0.05, compared to an adjusted loss per share of negative $0.03 in the year-ago quarter.
Street expects MDXG’s revenue in the fiscal fourth quarter ending December 2023 to increase 14.5% year-over-year to $85.15 million. Its EPS is expected to be $0.07. The company surpassed consensus EPS estimates in each of the trailing four quarters and consensus revenue estimates in three of the trailing four quarters.
The stock has gained 127.6% over the past year to close the last trading session at $7.17. Over the past six months, it gained 24.3%.
MDXG’s POWR Ratings reflect its positive prospects. The stock has an overall A rating, equating to a Strong Buy in our proprietary rating system.
The stock has an A grade for Growth and Quality and a B for Sentiment. Within the 145-stock Medical - Devices & Equipment industry, it is ranked #2.
To see additional POWR Ratings for Value, Momentum, and Stability for MDXG, click here.
Nature’s Sunshine Products, Inc. (NATR)
NATR is a natural health and wellness company that manufactures and sells nutritional and personal care products in Asia, Europe, North America, Latin America, and internationally.
NATR’s trailing-12-month gross profit margin of 72.18% is 114% higher than the 33.72% industry average. Its trailing-12-month asset turnover ratio of 1.90x is 125.2% higher than the 0.84x industry average.
For the fiscal second quarter that ended September 30, 2023, NATR’s revenue increased 6.4% year-over-year to $111.20 million, while gross profit stood at $81.24 million, up 8.5% from the prior-year quarter. Its adjusted EBITDA grew 50% from the year-ago value to $10.25 million.
For the same quarter, non-GAAP net income attributable to common shareholders and adjusted income per share came at $2.83 million and $0.15, compared to a non-GAAP net loss and adjusted loss per share of $1.05 million and $0.06 in the prior-year quarter.
Analysts expect NATR’s revenue to increase 6.1% year-over-year to $447.50 million for the year ending December 2023. Its EPS is expected to grow significantly year-over-year to $0.65 for the same period. It surpassed consensus revenue and EPS estimates in each of the four trailing quarters.
The stock has gained 107.9% year-to-date to close the last trading session at $17.30. Over the past six months, it gained 58.6%.
It’s no surprise that NATR has an overall A rating, equating to a Strong Buy in our POWR Ratings system.
It has an A grade for Sentiment and Quality and a B for Growth, Value, and Stability. It is ranked first within the 10-stock B-rated Medical - Consumer Goods industry.
Beyond what is stated above, we’ve also rated NATR for Momentum. Get all NATR ratings here.
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CAH shares were unchanged in premarket trading Tuesday. Year-to-date, CAH has gained 39.38%, versus a 20.10% rise in the benchmark S&P 500 index during the same period.
About the Author: Sristi Suman Jayaswal
The stock market dynamics sparked Sristi's interest during her school days, which led her to become a financial journalist. Investing in undervalued stocks with solid long-term growth prospects is her preferred strategy. Having earned a master's degree in Accounting and Finance, Sristi hopes to deepen her investment research experience and better guide investors.
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