Despite challenges ranging from the pandemic’s lingering impact to economic uncertainty, the healthcare industry is expected to remain on a positive growth trajectory, given the inelastic demand for its products and services. Moreover, the adoption of advanced technologies is expected to drive the efficiency and profitability of the healthcare sector.
Given such tailwinds, let us explore some fundamentally strong healthcare stocks, Medtronic plc (MDT) and The Cigna Group (CI), that might be ideal buys in April.
The growing use of technology in the healthcare sector has boosted growth. While medical technology played a crucial role during the pandemic, its evolution is helping shape the entire healthcare landscape. The global healthcare services market is expected to reach $21.06 trillion by 2030, growing at a CAGR of 8.3%.
Moreover, the growing use of digitization, that is, big data in healthcare, along with the use of EHR and EMR systems, and the help given to keep patients’ electronic health records up to date, are helping the healthcare industry to grow. Moreover, money is being put into mHealth companies, and preventive care is becoming more popular.
The Global Digital Healthcare Market is expected to reach $1.30 trillion by 2030 at a CAGR of 23.7% until 2030.
Driven by the increased expectations for convenience, ease of mind, and value-added technology of consumers today, there has been a substantial rise in the use of wearable technologies.
Since consumers value their connection to the Internet of Things, having a device that not only acts as an augment to a smartphone or fitness tracker but can also collect and monitor health data that provides considerable quality of life improvements is extremely appealing.
Medtronic plc (MDT)
Headquartered in Dublin, Ireland, MDT develops, manufactures, and sells device-based medical therapies to healthcare systems, physicians, clinicians, and patients worldwide.
On April 1, MDT and DaVita Inc. (DVA) announced the launch of Mozarc Medical, which is an independent new company committed to reshaping kidney health and driving patient-centered technology solutions. This should help expand MDT’s customer base and boost revenue streams.
MDT’s forward P/B multiple of 2.05 is 25.2% lower than the industry average of 2.74. its forward EV/EBIT multiple of 15.18 is 10.7% lower than the industry average of 17.
MDT’s trailing-12-month gross profit margin of 66.73% is 19.5% higher than the 55.85% industry average. Its trailing-12-month EBITDA margin of 28.06% is 930.6% higher than the 2.72% industry average.
On March 2, 2023, MDT announced a quarterly dividend of $0.68 per share of common stock, and is payable on April 14, 2023.
MDT pays an annual dividend of $2.72. This translates to a yield of 3.36% at the current market price. The 4-year average dividend yield is 2.31%. Its dividend payments have grown at a CAGR of 8% and 8.1% over the past three and five years, respectively.
During the fiscal third quarter ended January 27, 2023, MDT’s total US revenue increased 3.1% year-over-year to $4.06 billion. Non-GAAP net income attributable to MDT came in at $1.73 billion, whereas its non-GAAP earnings per share came in at $1.30.
MDT’s revenue is expected to increase 2.1% year-over-year to $8.26 billion during the fiscal fourth quarter ending April 2023. Its EPS is expected to increase 2.5% year-over-year to $1.56 for the same quarter. Additionally, it has topped consensus EPS estimates in three of the trailing four quarters, which is impressive.
The stock has gained 5.3% over the past month to close the last trading session at $80.81.
MDT’s POWR Ratings reflect this promising outlook. The stock has an overall rating of B, which translates to a Buy in our proprietary ratings system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It has a B grade in Value and Stability. The stock is ranked #15 out of 138-stock in the Medical - Devices & Equipment industry.
Click here to see the POWR Ratings of MDT (Sentiment, Growth, Quality, and Momentum).
The Cigna Group (CI)
CI provides insurance and related products and services in the United States. It operates through two segments: Evernorth; and Cigna Healthcare.
On February 13, CI announced that it is evolving its brand architecture to reflect its growing portfolio of businesses.
Lou Aversano, The CI’s chief brand and marketing officer, said, “Over the last several years, we’ve built a diverse portfolio of leading capabilities to serve more people across our businesses.Now, we are evolving our brand architecture to reflect how we are serving the breadth of our relationships today and into the future.”
CI’s forward P/B multiple of 1.73 is 36.9% lower than the industry average of 2.74. its forward EV/EBIT multiple of 12.02 is 29.3% lower than the industry average of 17.
CI’s trailing-12-month EBIT margin of 24.05% is 147.5% higher than the 9.7% industry average. Its trailing-12-month net income margin of 19.04% is 193.2% higher than the 6.50% industry average.
CI pays an annual dividend of $4.92. This translates to a yield of 1.85% at the current market price. The 4-year average dividend yield is 0.72%. Its dividend payments have grown at a CAGR of 385.9% and 158.2% over the past three and five years, respectively.
CI’s adjusted revenues increased marginally year-over-year to $45.74 billion in the fiscal fourth quarter, which ended December 31, 2022. Shareholders’ net income increased 4.7% year-over-year to $1.17 billion, while shareholders’ net income per share increased 13% year-over-year to $3.83.
CI’s revenue is expected to increase 3.1% year-over-year to $45.51 billion during the fiscal first quarter that ended March 2023. Its EPS is expected to be $5.32 for the same quarter. Additionally, it has topped consensus EPS estimates in each of the trailing four quarters.
The stock has gained 2.3% over the past year to close the last trading session at $260.77.
CI’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, equating to a Strong Buy in our proprietary rating system.
CI also has a B grade for Quality, Value, Sentiment, and Stability. It is ranked #3 out of 10 stocks in the A-rated Medical - Health Insurance industry.
To access additional ratings for CI’s Growth and Momentum, click here.
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MDT shares were trading at $80.92 per share on Thursday afternoon, up $0.11 (+0.14%). Year-to-date, MDT has gained 5.01%, versus a 8.00% rise in the benchmark S&P 500 index during the same period.
About the Author: Nidhi Agarwal
Nidhi is passionate about the capital market and wealth management, which led her to pursue a career as an investment analyst. She holds a bachelor's degree in finance and marketing and is pursuing the CFA program. Her fundamental approach to analyzing stocks helps investors identify the best investment opportunities.
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