The medical sector's outlook appears positive, fueled by factors such as an aging population, improved healthcare access, and technological advancements. Considering this, we analyze the fundamentals of Alcon Inc. (ALC) and Veeva Systems Inc. (VEEV) to gauge which one of these medical stocks could be a better pick for your portfolio prior to their fourth-quarter earnings release this week.
Before delving into the highlighted stocks, let's explore the factors driving the medical industry.
Hospitals are exhibiting a resurgence toward normalcy, evidenced by escalating revenue and operating margins, signifying the mitigation of healthcare staffing scarcities. Furthermore, diagnostics enterprises anticipate a revival, bridging the voids resulting from the downturn in COVID-19 test kit proceeds.
The demand for personalized medicine and treatments for chronic diseases, driven by an aging population, is also favoring the sector significantly. This is creating a conducive environment for innovation, investment, and expansion within the medical industry, leading to increased opportunities for growth, development, and market penetration.
Furthermore, rapid advancements, propelled by technologies such as automation, Artificial Intelligence (AI), and digital therapeutics, are reshaping the medical landscape. Wearables and home-based consumer devices are empowering patients, showcasing the industry's forward-thinking approach toward transformative growth.
AI and big data analytics are also unequivocally enhancing efficiency in drug development, clinical trials, and patient care. The year 2023 witnessed the dominance of AI, marking the advent of a technological era poised to persist into 2024 with ongoing advancements and profound impact.
That being said, the global medical device market is projected to reach $799.67 billion by 2030, growing at a CAGR of 5.9%, as per Fortune Business Insights. Meanwhile, MarketsandMarkets reports that global MedTech sales are expected to grow 4% year-over-year in 2024, with the diagnostic segment estimated to grow 3.1% in the same year.
With such hefty prospects in sight, the featured medical stocks might stand to gain. In terms of price performance, VEEV has climbed 5.8% over the past month, while ALC gained 4% during the same period.
Additionally, VEEV surged 19.4% over the past six months, closing the last trading session at $224, whereas ALC declined 4.6% during the same period, closing the last trading session at $80.53.
But which medical stock could be a better pick? Let's find out.
Recent Developments
On February 14, VEEV disclosed that animal health company Boehringer Ingelheim chose Veeva Vault Clinical and Veeva Vault RIM as its technology cornerstone for clinical and regulatory management in its animal health division.
The implementation of these applications is expected to enable Boehringer Ingelheim to enhance data integrity and swiftly adjust to evolving business needs, thereby bolstering VEEV's prospects through strengthened partnerships and increased adoption of its cutting-edge solutions.
On January 9, ALC revealed the promising outcomes of its pivotal Phase 3 trials (COMET-2 and COMET-3) for AR-15512, a potential game-changer in dry eye disease (DED) treatment.
By addressing the unmet needs of DED patients and Eye Care Professionals (ECPs), AR-15512 could position ALC as a frontrunner in the ophthalmic pharmaceutical landscape, potentially enhancing its market presence and revenue streams.
Recent Financial Results
For fiscal 2024 third quarter that ended October 31, 2023, VEEV’s total revenues increased 11.6% year-over-year to $616.51 million. Its non-GAAP gross profit grew 12.1% from the year-ago value to $464.64 million.
However, the company’s cash inflow from operating activities declined 42.1% from the prior year’s quarter to $82.60 million. Meanwhile, as of October 31, 2023, VEEV’s cash and cash equivalents came in at $743.71 million, down from $886.47 million as of January 31, 2023.
For the third quarter of fiscal 2023, which ended September 30, 2023, ALC’s net sales and other revenues increased 8.8% year-over-year to $2.33 billion. Its gross profit grew 10.5% from the year-ago value to $1.29 billion. Moreover, the company’s operating income rose 42.9% from the prior year’s quarter to $293 million.
Furthermore, as of September 30, 2023, ALC’s cash and cash equivalents amounted to $1.05 billion, up from $980 million as of December 31, 2022.
Past and Expected Financial Performance
Over the past three years, VEEV’s revenue and EBITDA increased at CAGRs of 18.5% and 5.5%, respectively. Moreover, its total assets and levered free cash flow grew at respective CAGRs of 26.5% and 18.2% during the period.
VEEV is expected to unveil its fiscal 2024 fourth-quarter earnings report on February 29. Analysts expect the company’s revenue for the quarter that ended January 2024 to reach $621.14 million, indicating a 10.3% year-over-year increase. Likewise, its EPS for the same period is expected to grow 12.9% from the previous year’s quarter to $1.30.
Over the past three years, ALC’s revenue and EBITDA rose at CAGRs of 10.9% and 26.7%, respectively. In addition, the company’s total assets and levered free cash flow increased at respective CAGRs of 2.3% and 22.9% over the same time frame.
ALC is expected to announce its fiscal 2023 fourth-quarter earnings report on February 28. The consensus revenue estimate of $2.34 billion for the quarter that ended December 2023 reflects an 8% year-over-year increase. Additionally, the company’s EPS for the same period is expected to rise 61% from the prior year’s quarter to $0.68.
Profitability
ALC’s trailing-12-month revenue is four times that of what VEEV generates. Moreover, ALC is more profitable, with a trailing-12-month EBITDA margin of 22.71% compared to VEEV’s 18.93%. Similarly, ALC’s trailing-12-month cash from operations of $1.28 billion compares with VEEV’s $916.97 million.
Valuation
In terms of trailing-12-month non-GAAP P/E, ALC is trading at 32.41x, 32.6% lower than VEEV’s 48.08x. Also, ALC’s trailing-12-month Price/Sales of 4.25x is 72.4% lower than VEEV’s 15.39x. Furthermore, ALC’s trailing-12-month EV/Sales and trailing-12-month EV/EBITDA of 4.71x and 20.74x compare with VEEV’s 13.85x and 73.17x, respectively.
POWR Ratings
VEEV has an overall rating of C, which equates to a Neutral in our proprietary POWR Ratings system. Conversely, ALC has an overall rating of B, translating to Buy. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight distinct categories. VEEV has a C grade for Stability, which aligns with its 24-month beta of 1.42. In contrast, ALC holds an A grade for Stability, which is supported by its 24-month beta of 0.69.
Moreover, VEEV has a D grade for Value, correlating with its higher-than-industry valuation. In terms of forward Price/Cash Flow and forward Price/Book, the stock is trading at 43.82x and 7.58x, 171.5% and 176.8% higher than the industry averages of 16.14x and 2.74x, respectively.
On the other hand, ALC has a C grade for Value, consistent with its mixed valuation. In terms of forward Price/Cash Flow, it is trading at 22.00x, 36.3% lower than the industry average of 16.14x. However, the stock’s forward Price/Book of 1.97x is 28.1% lower than the 2.74x industry average.
Of the 69 stocks in the Medical - Services industry, VEEV is ranked #25. Meanwhile, ALC is ranked #39 out of 141 stocks within the Medical - Devices & Equipment industry.
Beyond what we've stated above, we have also rated both stocks for Growth, Momentum, Quality, and Sentiment. Click here to view VEEV’s ratings. Get all ALC ratings here.
The Winner
The medical industry is thriving as post-COVID diagnostics recover and demand for personalized medicine rises with aging populations. Also, technological advancements are aiding in reshaping the landscape, fostering innovation and efficiency. This dynamic environment could fuel growth, development, and market penetration opportunities.
Both VEEV and ALC stand to gain from the industry’s growth. However, ALC's robust performance in the most recent quarter, better stability, and more favorable valuation indicate that it could be a superior investment choice over VEEV now.
Our research shows that the odds of success increase when one invests in stocks with an overall rating of Strong Buy. You can view all the top-rated stocks in the Medical - Services industry here. Additionally, for top-rated stocks in the Medical - Devices & Equipment industry, click here.
What To Do Next?
43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.
ALC shares were unchanged in premarket trading Tuesday. Year-to-date, ALC has gained 3.08%, versus a 6.45% rise in the benchmark S&P 500 index during the same period.
About the Author: Aanchal Sugandh
Aanchal's passion for financial markets drives her work as an investment analyst and journalist. She earned her bachelor's degree in finance and is pursuing the CFA program. She is proficient at assessing the long-term prospects of stocks with her fundamental analysis skills. Her goal is to help investors build portfolios with sustainable returns.
Veeva Systems (VEEV) vs. Alcon (ALC) Earnings Watch: Which Medical Stock Is the Better Pick? StockNews.com
