The U.S. healthcare industry is massive and is evolving with breakthrough developments and technological advancements. Moreover, the industry remains resilient in the face of macroeconomic headwinds, thanks to inelastic demand for its products and services.
Given this backdrop, investing in the healthcare industry would be lucrative. So, it could be wise to check out quality healthcare stocks McKesson Corporation (MCK), AmerisourceBergen Corporation (ABC), and Cardinal Health, Inc. (CAH).
Technological innovations have dramatically improved healthcare over the past decade. With growing needs to reduce health care costs, offer quality patient care, and overcome talent shortfalls, industry trends this year revolve around digital technologies such as telehealth, IoT/wearable health gadgets, artificial intelligence /machine learning, cloud technology, big data/analytics, and blockchain.
The global healthcare IT market is projected to exhibit a CAGR of 17.9% until 2030, driven by the growing trend of digitalization in healthcare, rising demand for preventive care solutions, and increased spending.
While sales of COVID-19 tests are waning, manufacturers and providers are rolling out other types of at-home tests. According to Precedence Research, the global home diagnostics market is expected to reach $8.15 billion by 2030. The do-it-yourself healthcare market is booming.
Global health expenditure is expected to reach $1,700 per capita in 2026, compared to the 2021 figure of $1,530 per capita in Purchasing Power Parity (PPP). Furthermore, the U.S. individual health insurance market is expected to expand at a CAGR of 6.1% until 2030.
Let’s discuss the stocks mentioned above in detail:
McKesson Corporation (MCK)
MCK provides healthcare services in the United States and internationally. It operates through four segments: U.S. Pharmaceutical; International; Medical-Surgical Solutions; and Prescription Technology Solutions.
MCK’s forward EV/Sales of 0.20x is 94.6% lower than the industry average of 3.75x. Its forward P/S multiple of 0.18 is 95.6% lower than the industry average of 4.11.
On April 27, MCK announced a quarterly dividend of $0.54 per share of common stock payable on July 3.
MCK pays a $2.16 per share dividend annually, which translates to a 0.59% yield on the current price. Its dividend payments have grown at a CAGR of 8.9% over the past three years. The company has a four-year average dividend yield of 0.87%.
During the fiscal fourth quarter ended March 31, 2023, MCK’s revenues increased 4.2% year-over-year to $68.91 billion. Adjusted earnings grew 14% year-over-year to $992 million, while its adjusted earnings per share increased 23.3% year-over-year to $7.19.
MCK’s EPS is expected to increase marginally year-over-year to $5.84 for the fiscal first quarter ending June 2023. The company’s revenue for the same quarter is expected to increase 2.5% year-over-year to $68.85 billion. Additionally, it has topped consensus revenue estimates in three of the trailing four quarters, which is impressive.
Shares of MCK have gained 10.4% over the past year to close the last trading session at $368.56.
MCK’s POWR Ratings reflect its promising outlook. The stock has an overall rating of A, which translates 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.
The stock has an A grade for Value and Growth and a B in Quality and Stability. It is ranked #3 out of 75 stocks in the Medical - Services industry.
Beyond what is stated above, we’ve also rated MCK for Sentiment and Momentum. Get all MCK ratings here.
AmerisourceBergen Corporation (ABC)
ABC sources and distributes pharmaceutical products. The company also provides pharmacy management, staffing, and other consulting services; supply management software to retail and institutional healthcare providers; packaging solutions to various institutional and retail healthcare providers; clinical trial support, product post-approval, and commercialization support services
On April 25, ABC announced the launch of its Cell and Gene Therapy Integration Hub, a system that can be integrated with biopharma or provider-facing platforms to facilitate real-time data exchange and help orchestrate services across the treatment development and patient journey.
ABC’s forward EV/Sales of 0.15x is 95.9% lower than the industry average of 3.72x. Its forward P/S multiple of 0.13 is 96.7% lower than the industry average of 4.05.
ABC announced a quarterly dividend of $0.49 per share of common stock payable on May 30.
ABC pays a $1.94 per share dividend annually, which translates to a 1.15% yield on the current price. Its dividend payments have grown at a CAGR of 5.3% over the past three years. The company has a four-year average dividend yield of 1.53%.
ABC’s revenues rose 9.9% year-over-year to $63.46 billion in the fiscal second quarter that ended March 31, 2023. Non-GAAP net income attributable to ABC increased 4.7% year-over-year to $715.36 million, while its non-GAAP EPS increased 8.7% year-over-year to $3.50.
Street expects ABC’s revenue for the fiscal third quarter ending June 2023 to increase 5.5% year-over-year to $63.38 billion. The company’s EPS for the same quarter is expected to increase 7.1% year-over-year to $2.81. Additionally, it has topped consensus EPS and revenue estimates in each of the trailing four quarters.
The stock has gained 19.6% over the past nine months to close the last trading session at $168.21.
ABC’s robust prospects are reflected in its POWR Ratings. The stock has an overall A rating, equating to a Strong Buy in our proprietary rating system.
ABC has an A grade for Growth and a B in Value, Stability, and Sentiment. It is ranked #2 in the same industry.
Click here to see the additional POWR Ratings for ABC (Momentum and Quality).
Cardinal Health, Inc. (CAH)
CAH operates as an integrated healthcare services and products company in the United States, Canada, Europe, Asia, and internationally. It provides customized solutions for hospitals, healthcare systems, pharmacies, ambulatory surgery centers, clinical laboratories, physician offices, and patients in the home.
On April 19, CAH announced the launch of the first-of-its-kind Stray Away hair management drape for more efficient surgical procedure preparation. The Stray Away drape is specifically designed and manufactured by Cardinal Health to help minimize hair from obstructing the surgical area and to improve patient preparation time and experience.
CAH’s forward EV/Sales of 0.11x is 97.1% lower than the industry average of 3.72x. Its forward P/S multiple of 0.11 is 97.4% lower than the industry average of 4.05.
CAH pays a $1.98 per share dividend annually, translating to a 2.36% yield on the current price. Its dividend payments have grown at a CAGR of 1% over the past three years. The company has a four-year average dividend yield of 3.53%.
CAH’s revenue increased 12.6% year-over-year to $50.49 billion in the fiscal third quarter, which ended March 31, 2023. Net earnings attributable to CAH came in at $345 million, compared to a loss of $1.39 billion in the previous-year quarter. Also, earnings per common share attributable to CAH came in at $1.34, compared to negative $5.05 in the previous-year quarter.
Analysts expect CAH’s revenue for the fiscal fourth quarter ending June 2023 to increase 11.6% year-over-year to $52.58 billion. Its EPS is expected to increase 40.7% year-over-year to $1.48 for the same quarter.
The stock has gained 44.4% over the past year to close the last trading session at $84.15.
CAH’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.
CAH also has an A grade for Growth and Value and a B in Sentiment and Quality. It is ranked first in the same industry.
To access additional ratings for CAH’s Stability and Momentum, click here.
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MCK shares rose $15.44 (+4.19%) in premarket trading Tuesday. Year-to-date, MCK has gained 2.52%, versus a 7.95% 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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