The healthcare industry has witnessed a revolutionary transformation in healthcare delivery through advancements in medical technology and research, leading to the development of innovative therapies, diagnostic tools, and technologies that address unmet medical needs, ultimately improving patient outcomes.
Despite facing recessionary headwinds, the healthcare sector has proven its resilience due to its defensive nature, making it an attractive investment option. Given this backdrop, it could be wise to invest in fundamentally sound stocks, Cardinal Health, Inc. (CAH), Bruker Corporation (BRKR), and Semler Scientific, Inc. (SMLR), to capitalize on the industry's growth prospects.
The demand for the healthcare industry is experiencing a significant rise, driven by various factors. One of the primary drivers is the aging global population, as older individuals tend to require more healthcare services. Additionally, the prevalence of chronic diseases is increasing, necessitating ongoing medical care and treatment.
Earlier this month, World Health Organization (WHO) warned that chronic diseases are taking an “immense and increasing toll on lives,” with projections of 86% of the 90 million deaths each year, up 90% from 2019. It also revealed that non-communicable diseases claim nearly three-quarters of all lives lost each year.
While the digitalization of the healthcare industry has brought about significant transformations, offering innovative solutions and improved patient care, the global smart healthcare market is projected to grow at a CAGR of 12.8% from 2023 to 2030.
Given the Fed's stance and the volatile price swings in the market, investors are flocking toward defensive investments to safeguard their portfolios. Thus, medical stocks are seen as potential hedges against market volatility and have the potential to provide steady returns.
With that being said, let’s evaluate the fundamental factors of the aforementioned stocks to gain insights about them.
Cardinal Health, Inc. (CAH)
CAH is an integrated healthcare services and products company. It provides customized solutions for hospitals, healthcare systems, pharmacies, ambulatory surgery centers, clinical laboratories, physician offices, and patients in the home. The company operates in two segments: Pharmaceutical and Medical.
On May 10, CAH announced its plans to establish a new distribution center in the Greater Toronto Area (GTA) in order to expand its distribution capabilities and better serve the medical and surgical product needs of the Canadian healthcare system.
This new facility, covering an area of 163,000 square feet, will leverage state-of-the-art robotic technologies to optimize operations and provide improved experiences for employees, customers, and suppliers.
Russell Schuster, the President of CAH Canada, emphasized that this distribution center aligns with CAH's commitment to providing market-leading solutions and further reinforces its dedication to supporting hospitals in delivering excellent patient care.
On April 19, CAH introduced a ground-breaking product called the Stray Away™ hair management drape, aimed at optimizing surgical procedure preparation. This innovative drape, developed and produced by CAH, is designed to effectively minimize the presence of hair in the surgical area, thereby enhancing patient preparation time and overall experience.
The development of the Stray Away™ hair management drape is a collaborative effort between CAH and its customer, MedStar Health. This collaboration has demonstrated their commitment to advancing healthcare through inventive solutions.
For the third quarter that ended March 31, 2023, CAH’s revenue increased 12.6% year-over-year to $50.49 billion. Its gross margin rose 6.1% from the year-ago value to $1.79 billion.
The company’s non-GAAP net earnings grew 11.2% and 20% from the prior-year quarter to $447 million and $1.74 per share, respectively. Also, its non-GAAP operating earnings increased 11.2% from the year-ago value to $606 million.
The consensus EPS estimate of $1.47 for the fourth quarter (ending June 30, 2023) represents a 40.4% improvement year-over-year. The consensus revenue estimate of $52.64 billion for the ongoing quarter represents an 11.8% increase from the same period last year. Moreover, it surpassed the EPS estimates in three of the trailing four quarters, which is impressive.
CAH’s shares have gained 40.9% over the past year to close the last trading session at $81.33.
CAH’s POWR Ratings reflect this robust outlook. The stock has an overall A rating, which translates to a Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It has an A grade for Growth and Value and a B for Sentiment and Quality. In the 74-stock Medical - Services industry, it is ranked first. To see additional POWR Ratings of CAH for Momentum and Stability, click here.
Bruker Corporation (BRKR)
BRKR develops, manufactures, and distributes scientific instruments, and analytical and diagnostic solutions that enable customers to explore life and materials at microscopic, molecular, and cellular levels. The company operates through four segments: Bruker Scientific Instruments (BSI) BioSpin; BSI CALID; BSI NANO; and Bruker Energy & Supercon Technologies.
On May 8, BRKR acquired ZONTAL Inc., a platform provider focused on the digital transformation of analytical laboratories and integrated biopharma technical data solutions. With this acquisition, BRKR aims to enhance integrated digital laboratory and process data management by offering vendor-agnostic data storage and analysis, as well as workflow tools, while strengthening its BioSpin's Integrated Data Solutions (IDS) software division.
On January 5, BRKR announced the acquisition of ACQUIFER Imaging GmbH, a pioneer in developing big-data management solutions specifically designed for bioimaging and high-content microscopy.
This acquisition brings valuable additions to BRKR's portfolio, including high-performance on-premise processing, secure storage, and networking technology that complements its advanced fluorescence microscopy imaging products, such as light-sheet and super-resolution microscopy products, which generate high information content.
BRKR’s revenue increased 15.2% year-over-year to $685.30 million in the first quarter (ended March 31, 2023), while its non-GAAP gross profit rose 16.8% from the year-ago value to $365.90 million.
The company’s non-GAAP net income and EPS grew 27.5% and 30.6% from the prior-year quarter to $95.10 million and $0.64, respectively. Also, its non-GAAP EBITDA increased 17.3% from the year-ago value to $149 million.
Street expects BRKR’s revenue and EPS for the second quarter (ending June 30, 2023) to increase 10.1% and 7.8% year-over-year to be $648.05 million and $0.49, respectively. Also, it surpassed the revenue estimates in three of its trailing four quarters, which is promising.
Over the past nine months, the stock has gained 23.9% to close the last trading session at $70.29.
BRKR’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of A, which equates to a Strong Buy in our proprietary rating system.
It has an A grade for Growth and a B for Value, Stability, Sentiment, and Quality. Within the 54-stock Medical - Diagnostics/Research industry, it is ranked first. Click here to see BRKR’s rating for Momentum.
Semler Scientific, Inc. (SMLR)
SMLR is engaged in the provision of technological solutions to improve the clinical effectiveness and efficiency of healthcare providers. The company's products include QuantaFlo, a four-minute in-office blood flow and Insulin Insights, a software program used by a healthcare provider to optimize outpatient insulin dosing.
SMLR’s revenues increased 29.9% year-over-year to $18.21 million in the first quarter (ended March 31, 2023), while its income from operations rose 58.7% from the year-ago value to $6.26 million. The company’s net income amounted to $4.97 million and $0.63 per share, representing increases of 47.9% and 53.7% from the prior-year quarter, respectively.
During the same period, its total current assets amounted to $55.59 million, up 13.7% compared to $48.91 million for the period that ended December 31, 2022.
Analysts expect SMLR’s revenue for the second quarter (ending June 30, 2023) to increase 7.9% year-over-year to $16 million. Its EPS estimate of $0.56 for the ongoing quarter is expected to increase 9.8% year-over-year. The company has an excellent earnings surprise history, as it surpassed the consensus EPS estimates in each of the trailing four quarters.
The stock has gained 25.4% over the past three months to close the last trading session at $27.58.
It’s no surprise that SMLR has an overall rating of A, which equates to a Strong Buy in our proprietary rating system. It has a B grade for Growth, Value, Sentiment, and Quality. Out of 54 stocks in the Medical - Diagnostics/Research industry, it is ranked #2.
In addition to the POWR Ratings we’ve stated above, we also have SMLR’s ratings for Momentum and Stability. Get all SMLR ratings here.
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CAH shares were trading at $82.62 per share on Wednesday afternoon, up $1.29 (+1.59%). Year-to-date, CAH has gained 8.19%, versus a 9.87% 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.
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