The healthcare industry flourished during the pandemic’s height due to its role in helping the world fight against the deadly virus. Moreover, an aging population and increasing prevalence of chronic diseases brighten the industry’s prospects.
While the broader market is witnessing a sell-off with rising fears of recession due to the Fed’s aggressive interest rate hikes, medical stocks remained relatively stable because of the inelastic demand for medical products and services.
However, the ongoing clinical labor shortage and rising labor costs are expected to weigh on the profit margins of medical stocks. According to a report by McKinsey, with increased patient demand, researchers predict a nursing shortage of between 200,000 and 450,000 by 2025.
Presently, healthcare spending in the United States is about 16% of GDP compared to 8% in other countries. The U.S. national healthcare spending is expected to increase by $370 billion in the next five years. According to a Centers for Medicare & Medicaid Services report, national health spending is projected to reach $6.2 trillion by 2028.
Given the industry’s resilience and long-term growth prospects, it could be wise to invest in fundamentally strong medical stocks HCA Healthcare, Inc. (HCA), Fresenius SE & Co. KGaA (FSNUY), and Hanger, Inc. (HNGR). However, investors should avoid Cano Health, Inc. (CANO), given its weak financials and growth prospects.
Stocks to Buy:
HCA Healthcare, Inc. (HCA)
HCA is a healthcare services company that owns and operates general and acute care hospitals offering medical, surgical, emergency, and outpatient services. In addition, the company operates in two geographically organized groups: The National and American Groups.
On August 9, 2022, HCA collaborated with Johnson & Johnson to address key healthcare clinical and industry issues. Both companies will focus on improving health equity and enhancing nursing support and patient care through this initiative.
HCA’s revenue increased 2.7% year-over-year to $14.82 billion in the second quarter ended June 30, 2022. As of June 30, 2022, the company’s total assets increased 1.6% to $51.58 billion from the year-end value of $50.74 billion on December 31, 2021.
The consensus EPS estimate of $4.89 for its fiscal fourth quarter (ending December 31, 2022) represents a 10.7% improvement year-over-year. The consensus revenue estimate of $15.60 billion for the next quarter indicates a 3.5% increase from the year-ago period.
The stock has gained 6.8% over the past three months to close the last trading session at $187.68.
HCA’s POWR Ratings reflect this promising outlook. The company has an overall B rating, which translates to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 distinct factors, each with its own weighting.
It has a B grade for Value, Stability, Sentiment, and Quality. HCA is ranked first among the 13 stocks in the Medical - Hospitals industry. Click here to see the other ratings of HCA for Growth and Momentum.
Fresenius SE & Co. KGaA (FSNUY)
FSNUY is a Germany-based health care provider of products and services for dialysis, hospitals, and outpatient medical care. The company operates through four segments: Fresenius Medical Care, Fresenius Kabi; Fresenius Helios; and Fresenius Vamed.
On September 6, 2022, the company received the FDA’s approval for biosimilar Stimufend® (pegfilgrastim) for treating patients with non-myeloid malignancies. With this approval, FSNUY expected to launch the product in a prefilled syringe next year and additionally in an on-body injector.
During the fiscal second quarter that ended June 30, 2022, FSNUY’s sales increased 8.3% year-over-year to €10.02 billion ($9.75 billion). Its gross profit rose 2.3% from the year-ago value to €2.68 billion ($2.61 billion), while its EBITDA increased marginally year-over-year to €1.68 billion ($1.64 billion).
As of June 30, 2022, the company’s total assets increased 5.8% to €76.11 billion ($74.07 billion) from the year-end value of €71.96 billion ($70.03 billion) on December 31, 2021.
Analysts expect FSNUY’s revenues to increase 5.3% year-over-year to $42.48 billion in fiscal 2023. Over the past month, the stock has lost 16.1% to close the last trading session at $5.23.
FSNUY’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, which equates to Buy in our proprietary rating system. FSNUY has an A grade for Value and Stability. Within the same industry, the stock is ranked #2.
In addition to the POWR Ratings I have just highlighted, click here to see the FSNUY ratings for Growth, Momentum, Sentiment, and Quality.
Hanger, Inc. (HNGR)
HNGR provides orthotic and prosthetic (O&P) services in the United States. It operates in two segments: Patient Care: and Products & Services. It also offers therapeutic solutions to patients and businesses in acute, post-acute, and clinic settings.
In the second quarter that ended June 30, 2022, HNGR’s net revenue increased 11.1% year-over-year to $312.03 million. Its adjusted EBITDA rose 14.5% from the year-ago value to $35.46 million, while its adjusted net income grew 32.9% to $13.86 million. The company’s adjusted EPS increased 29.6% from the year-ago value to $0.35.
Analysts expect HNGR’s EPS and revenue to increase 37.5% and 4.3% year-over-year to $0.55 and $325.93 million, respectively, in the fiscal fourth quarter ending December 31, 2022.
Shares of HNGR have gained 30.6% over the past three months to close its last trading day at $18.72.
HNGR’s POWR Ratings reflect solid prospects. The stock has an overall rating of B, translating to a Buy in our proprietary rating system. It has a B grade for Value. Again, in the Medical - Hospitals industry, HNGR is ranked #3.
To see the other ratings of HNGR for Growth, Momentum, Stability, Sentiment, and Quality, click here.
Stock to Avoid:
Cano Health, Inc. (CANO)
CANO operates as a primary care medical services provider in the United States and Puerto Rico. The company owns and operates medical centers enabled by CanoPanorama, a health management technology-powered platform.
For the fiscal second quarter that ended June 30, 2022, CANO’s total operating expenses increased 80.9% year-over-year to $720.42 million. Its loss from operations narrowed 43.1% from the year-ago value to $31.05 million. Also, its net loss came in at $14.56 million, narrowing 59.9% from the prior year period.
Analysts expect CANO’s EPS to decrease 29% year-over-year to $0.11 for fiscal 2022. Over the past year, the stock has lost 32.2% to close the last trading session at $8.67.
CANO’s POWR Ratings reflect this bleak outlook. It has an overall rating of F, which translates to a Strong Sell in our proprietary rating system.
It has an F for Stability and Quality and a D for Value and Sentiment. It is ranked #12 out of 13 stocks in the D-rated Medical – Hospitals industry. Click here to see the other ratings of CANO for Growth and Momentum.
HCA shares were trading at $186.34 per share on Friday afternoon, down $1.34 (-0.71%). Year-to-date, HCA has declined -26.90%, versus a -23.16% rise in the benchmark S&P 500 index during the same period.
About the Author: Shweta Kumari
Shweta's profound interest in financial research and quantitative analysis led her to pursue a career as an investment analyst. She uses her knowledge to help retail investors make educated investment decisions.
3 Medical Stocks to Buy and 1 to Sell Ahead of Q4 StockNews.com
