The healthcare sector has performed notably well, fueled by the burgeoning integration of remarkable technological advances, the progression of sophisticated medical research to satisfy mounting individual demands, and the surge in clinical diagnosis stemming from an increased prevalence of infectious and chronic ailments.
To that end, it would be wise to add quality medical stocks McKesson Corporation (MCK), Qiagen N.V. (QGEN), and DaVita Inc. (DVA) to one’s portfolio now to garner significant returns.
The medical sector is expected to see substantial growth powered by factors such as a rapidly aging demographic, the surge in infectious diseases, and the escalation of chronic ailments. This trend emphasizes the critical need for personalized medical solutions and technology innovations within the industry.
The healthcare industry is happily welcoming technological developments like artificial intelligence (AI) and gene editing that could enhance disease detection and treatment methods, subsequently improving patient outcomes.
In addition, novel medical technologies are increasingly being adopted to augment the patients' experience with medical services. The global medical devices market is projected to grow at a CAGR of 5.9%, reaching $799.67 billion by 2030, driven by increasing healthcare expenditures.
Within the healthcare sector, clinical diagnostics, responsible for significant growth in the field, plays an essential role. Key contributors to this progress include an aging population, technological advancements, a rise in chronic disease prevalence, and an increasing focus on personalized treatments and early disease detection.
In the coming year, innovative transformations, especially in AI, are projected to foster diagnostic development further. Machine learning's potential to significantly increase aid and efficiency in diagnostic processes enhances its appeal to the industry. Consequently, the global clinical diagnostic market is projected to grow at a CAGR of 6.1% by 2028.
Investors’ interest in the medical industry is evident from the SPDR Select Sector Fund – Health Care ETF’s (XLV) 7.3% returns over the past three months.
In light of these encouraging trends, let's look at the fundamentals of the three medical stocks.
McKesson Corporation (MCK)
MCK provides healthcare services in the United States and internationally. It operates through four segments: U.S. Pharmaceutical; Prescription Technology Solutions (RxTS); Medical-Surgical Solutions; and International.
On January 2, MCK paid stockholders a regular dividend of 62 cents per share of common stock. The company has a record of paying dividends for 24 consecutive years, reflecting its shareholder payback abilities.
Its annualized dividend of $2.48 per share translates to a dividend yield of 0.51% on the current share price. Its four-year average yield is 0.76%. MCK’s dividend payments have grown at CAGRs of 11.8% and 9.7% over the past three and five years, respectively.
MCK’s trailing-12-month cash per share of $18.97 is significantly higher than the industry average of $1.26. Likewise, its trailing-12-month asset turnover ratio of 4.51x is significantly higher than the industry average of 0.39x. Moreover, its trailing-12-month levered FCF margin of 1.68% is 610.8% higher than the industry average of 0.24%.
For the fiscal second quarter that ended September 30, 2023, MCK’s revenues increased 10.1% year-over-year to $77.22 billion, while adjusted gross profit stood at $3.05 billion.
For the same quarter, its adjusted net earnings stood at $841 million, while adjusted earnings per share increased 2.8% from the year-ago quarter to $6.23. As of September 30, 2023, MCK’s total current assets stood at $47.53 billion, compared to $44.29 billion as of March 31, 2023.
Street expects MCK’s revenue and EPS for the fiscal third quarter of 2024 (ended December 2023) to increase 10.3% and 1.9% year-over-year to $77.73 billion and $7.03, respectively. The company surpassed consensus EPS estimates in each of the trailing four quarters and consensus revenue estimates in three of the trailing four quarters, which is impressive.
The stock has gained 36.9% over the past nine months to close the last trading session at $493. Over the past year, it has gained 30.3%.
MCK’s POWR Ratings reflect its positive prospects. The stock has an overall B rating, equating to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
The stock has a B grade for Value, Stability, and Sentiment. Within the Medical – Services industry, it is ranked #5 out of 67 stocks.
To see additional POWR Ratings for Growth, Momentum, and Quality for MCK, click here.
Qiagen N.V. (QGEN)
Headquartered in Venlo, the Netherlands, QGEN offers sample-to-insight solutions that transform biological materials into molecular insights worldwide.
Recently, QGEN completed the synthetic share repurchase plan to return up to approximately $300 million, which combined a direct capital repayment to QGEN shareholders with a reverse stock split.
The repayment from existing cash reserves is expected to lead to an approximately 3% reduction in the number of issued shares (based on the current share price). As per the terms of the synthetic share repurchase, every 25 issued QGEN shares will be consolidated into 24.25 QGEN shares, leading to a reduction of approximately 6.9 million shares from the level of 230.80 million shares at the end of 2023.
On January 8, QGEN received the U.S. Food and Drug Administration (FDA) clearance for the NeuMoDx CT/NG Assay 2.0, growing its test menu for its integrated PCR-based clinical molecular testing systems NeuMoDx 96 and 288 in the U.S.
This assay is designed for direct detection of asymptomatic and symptomatic bacterial infections. It marks an important milestone with the first FDA clearance of a NeuMoDx assay for use, and this will be an important differentiator in building out the menu in the U.S. to complement the broad menu offered in Europe and other countries.
QGEN’s trailing-12-month cash per share of $2.54 is 101.9% higher than the industry average of $1.26. Its trailing-12-month EBIT and levered FCF margins of 22.43% and 3.77% are significantly higher than the industry averages of 0.07% and 0.24%, respectively.
For the fiscal third quarter that ended September 30, 2023, QGEN’s net sales and adjusted gross profit stood at $475.89 million and $314.50 million, respectively. For the same quarter, its adjusted net income and adjusted EPS stood at $115.20 million and $0.50, respectively.
For the nine months that ended September 30, 2023, its free cash flow stood at $209.83 million. As of September 30, 2023, its total current liabilities came at $524.37 million, compared to $974.52 million as of December 31, 2022.
Street expects QGEN’s revenue and EPS for the fiscal fourth quarter of 2023 (ended December 2023) to increase 1.3% and 1.4% year-over-year to $504.30 million and $0.54, respectively. The company surpassed consensus revenue and EPS estimates in each of the trailing four quarters.
The stock has gained 18% over the past three months to close the last trading session at $44.65. Over the past month, it has gained 5.4%.
QGEN’s solid fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, translating to Buy in our proprietary rating system.
QGEN has a B grade for Stability, Sentiment, and Quality. Within the Medical – Diagnostics/Research industry, it is ranked #4 out of 46 stocks.
Beyond what we’ve stated above, we have also rated the stock for Growth, Value, and Momentum. Get all ratings of QGEN here.
DaVita Inc. (DVA)
DVA provides kidney dialysis services for patients suffering from chronic kidney failure in the U.S. The company operates kidney dialysis centers and provides related lab services in outpatient dialysis centers.
On October 18, 2023, DVA collaborated with Google Cloud to create a new clinical operating system that sets a foundation for streamlined kidney care for more than 200,000 DVA patients. Built on Google Cloud infrastructure and utilizing AI and analytics tools co-developed by the two companies, DVA's Center Without Walls (CWOW) is available across the organization's 2,700+ dialysis centers nationwide.
CWOW is custom-built for kidney care, and the Google Cloud infrastructure allows DVA to connect with its physician and hospital partners to establish a consistent flow of information from day one of a patient's kidney care journey
DVA’s trailing-12-month cash per share of $4.92 is 290.9% higher than the industry average of $1.26. Its trailing-12-month EBIT and levered FCF margins of 12.36% and 8.81% are significantly higher than the industry averages of 0.07% and 0.24%, respectively.
For the fiscal third quarter that ended September 30, 2023, DVA’s total revenues increased 5.9% year-over-year to $3.12 billion, while free cash flow stood at $453 million. Moreover, its adjusted operating income increased 49.6% from the year-ago quarter to $525 million.
For the same quarter, its adjusted net income attributable to DVA and adjusted net income attributable to DVA per share stood at $268 million and $2.85, up 98.5% and 96.6% from the prior year quarter.
Street expects DVA’s revenue and EPS for the fiscal fourth quarter of 2023 (ended December 2023) to increase 3.1% and 49.3% year-over-year to $3.01 billion and $1.66, respectively. 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 33.9% over the past three months to close the last trading session at $105.41. Over the past year, it has gained 32.7%.
DVA’s robust prospects are reflected in its POWR Ratings. The stock has an overall B rating, equating to Buy in our proprietary rating system.
DVA has an A grade for Growth and a B for Value and Quality. It is ranked #7 within the Medical – Services industry.
Click here for the additional POWR Ratings for DVA (Momentum, Stability, and Sentiment).
What To Do Next?
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MCK shares were unchanged in premarket trading Friday. Year-to-date, MCK has gained 6.48%, versus a 0.25% 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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