In recent years, the medical industry has experienced significant expansion, driven by factors such as an aging population, growing healthcare needs, rapid advancements in technology, and the emergence of digital health platforms.
Considering the promising prospects of the medical sector, it could be wise to wait for a better entry point in Walgreens Boots Alliance, Inc. (WBA) and add fundamentally strong medical stocks Tenet Healthcare Corporation (THC) and LifeVantage Corporation (LFVN) to one’s portfolio.
Before diving deeper into the fundamentals of these stocks, let’s discuss what’s shaping the medical industry’s prospects.
The medical industry plays a vital role in improving the way of life for people worldwide. The persistent need for healthcare services and innovations is fueling the sector’s growth. U.S. healthcare spending reached $4.5 trillion in 2022, averaging $13,493 per person. Healthcare costs have been rising constantly, underlying the significance of medical companies.
An aging population, increasing cost of healthcare services, and the rise in chronic Non-Communicable Diseases (NCDs) are some of the factors providing opportunities for the medical sector to expand in order to address people’s medical needs. The Centers for Medicare and Medicaid Services project a 5.4% annual growth in U.S. healthcare spending, reaching an estimated 19.6% of GDP by 2031.
The digitization of the medical sector has profoundly altered it, introducing numerous beneficial changes related to efficiency, accessibility, and patient care. The revenue in the digital health market is projected to reach $50.17 billion in 2024 and expand at a CAGR of 7.5% to reach $66.96 billion by 2028.
Moreover, the medical industry is increasingly leveraging technology such as AI to innovate and improve disease detection and treatment, leading to more positive outcomes. According to a Congressional Budget Office (CBO) projection, total spending on health care would rise to 25% in 2025 and 37% in 2050 and 49% in 2082.
Let’s examine the fundamentals of the three featured medical stocks.
Walgreens Boots Alliance, Inc. (WBA)
WBA operates as a healthcare, pharmacy, and retail company in the United States, the United Kingdom, Germany, and internationally. It operates through three segments: U.S. Retail Pharmacy, International, and U.S. Healthcare.
On November 9, 2023, WBA announced the sale of the shares of Cencora, Inc. (COR) for current proceeds of approximately $424 million and, potentially additional proceeds at maturity. In addition, and subject to the closing of the Rule 144 transaction, WBA entered into a concurrent share repurchase by Cencora for proceeds of approximately $250 million.
The company intends to use the proceeds primarily for debt paydown and general corporate purposes. The transaction will also help the company simplify its portfolio while improving cash management.
In terms of forward non-GAAP P/E, WBA’s 6.95x is 61.5% lower than the 18.03x industry average. Its 0.43x forward EV/Sales is 74.2% lower than the 1.67x industry average.
On the other hand, its 17.95x forward EV/EBIT is 19.4% higher than the 15.04x industry average.
WBA’s sales for the fourth quarter ended November 30, 2023, increased 10% year-over-year to $36.71 billion. On the other hand, its adjusted gross profit declined 2.2% over the prior-year quarter to $6.85 billion. The company’s adjusted operating income decreased 32.2% year-over-year to $687 million.
Also, its adjusted net earnings attributable to WBA declined 43.1% over the prior-year quarter to $571 million. Additionally, its adjusted EPS stood at $0.66, representing a decline of 43.1% year-over-year.
Street expects WBA’s revenue for the quarter ending February 29, 2024, to increase 2.5% year-over-year to $35.75 billion. Its EPS for the same quarter is expected to decrease 24.6% year-over-year to $0.88. Over the past month, the stock has declined 9.3% and gained 0.4% over the past three months to close the last trading session at $22.87.
WBA’s POWR Ratings are consistent with this uncertain outlook. It has an overall rating of C, translating to Neutral in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
It has a C grade for Value, Stability, and Quality. It is ranked last out of the three stocks within the Medical – Drug Stores industry. Click here to see WBA’s ratings for Growth, Momentum, and Quality.
Tenet Healthcare Corporation (THC)
THC operates as a diversified healthcare services company. The company operates through three segments: Hospital Operations, Ambulatory Care, and Conifer. Its general hospitals offer acute care services, operating and recovery rooms, radiology and respiratory therapy services, clinical laboratories, and pharmacies. It also provides intensive and critical cardiovascular, digestive disease, outpatient, and other services.
On November 17, 2023, THC announced that it entered into a definitive agreement with Novant Health for the sale of three Tenet hospitals and related operations in South Carolina for approximately $2.4 billion in cash (after-tax proceeds of approximately $1.750 billion).
THC will utilize the proceeds from the transaction primarily for debt retirement. The transaction is expected to be completed in the first quarter of 2024, subject to customary regulatory approvals, clearances, and closing conditions.
In terms of forward EV/EBIT, THC’s 10.23x is 40.5% lower than the 17.21x industry average. Its 0.40x forward Price/Sales is 89.9% lower than the 3.98x industry average. Likewise, its 7.61x forward EV/EBITDA is 42.9% lower than the 13.32x industry average.
For the fiscal third quarter, which ended September 30, 2023, THC’s net operating revenues increased 5.5% year-over-year to $5.07 billion. Its adjusted EBITDA increased 1.5% year-over-year to $854 million. The company’s adjusted EPS from continuing operations available to THC common shareholders came in at $1.44, registering an increase of 1.4% over the prior year quarter.
Also, its adjusted net income available from continuing operations to common shareholders came in at $153 million.
Analysts expect THC’s revenue for the quarter ended December 31, 2023, to increase 5.6% year-over-year to $5.27 billion. It has topped the consensus EPS estimates in each of the trailing four quarters. Over the past year, the stock has gained 56.5% to close the last trading session at $80.96.
THC’s solid prospects are reflected in its POWR Ratings. It has an overall rating of B, which translates to a Buy in our proprietary rating system.
It has a B grade for Growth and Value. Within the Medical – Hospitals industry, it is ranked #2 out of 11 stocks. One can check out the additional POWR Ratings of THC for Momentum, Stability, Sentiment, and Quality here
LifeVantage Corporation (LFVN)
LFVN engages in identifying, researching, developing, formulating, and selling of advanced nutrigenomic activators, dietary supplements, nootropics, pre- and pro-biotics, weight management, skin and hair care products, bath and body, and targeted relief products. It offers Prontadim, LifeVantage Omega+, LifeVantage ProBio, PhysIQ, LifeVantage IC Bright, Petandim for dogs, Axio, etc.
The Company intends to use the proceeds primarily for debt paydown and general corporate purposes. The transaction is another decisive action to further simplify the Company’s portfolio, while improving cash management.
In terms of forward non-GAAP P/E, LFVN’s 10.16x is 43.6% lower than the 18.03x industry average. Its 0.31x forward EV/Sales is 81.6% lower than the 1.67x industry average. Likewise, its 3.93x forward EV/EBITDA is 65.2% lower than the 11.30x industry average.
LFVN’s net revenue for the fiscal first quarter ended September 30, 2023, amounted to $51.36 million. Its non-GAAP adjusted EBITDA increased 41.4% year-over-year to $3.99 million. The company’s non-GAAP net income rose 139.7% over the prior year quarter to $1.67 million. Also, its non-GAAP adjusted EPS came in at $0.13, registering an increase of 116.7% year-over-year.
LFVN’s revenue for the quarter ended December 31, 2023, increased 1.8% year-over-year to $54.65 million. Over the past nine months, the stock has gained 75.8% to close the last trading session at $5.59.
It’s no surprise that LFVN has an overall rating of A, which translates to a Strong Buy in our POWR Ratings system.
It has an A grade for Value and Quality and a B for Sentiment. It is ranked #2 out of 8 stocks in the A-rated Medical – Consumer Goods industry. To see the additional ratings of LFVN for Growth, Momentum, and Stability, click here.
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WBA shares were trading at $22.36 per share on Wednesday afternoon, down $0.51 (-2.23%). Year-to-date, WBA has declined -14.36%, versus a -0.81% rise in the benchmark S&P 500 index during the same period.
About the Author: Dipanjan Banchur
Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets.
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