The COVID-19 pandemic, which has been a biological crisis of unprecedented nature, has altered the very nature and dynamics of the healthcare industry. The Zacks Medical - Dental Supplies industry bore the brunt of the closure of dental practices and lower patient visits due to the COVID-19 crisis. However, with recovery in dental markets picking up pace primarily owing to the lifting of stay-at-home orders, and rising dependence on Artificial Intelligence (AI) & Robotics and teledentistry, several companies have been witnessing slow recovery from the month of July despite the ongoing pandemic. McKesson Corporation (MCK), West Pharmaceutical Services Inc. (WST) and Cardinal Health Inc. (CAH) are likely to gain from the prospects.
Industry Description
This industry primarily comprises designers, developers, manufacturers and marketers of dental consumables, dental laboratory products and dental specialty items. Some of the industry participants also provide practice management and clinical software, patient education systems, and office forms and stationery. Some key players in this space include Becton Dickinson and Company (BDX), Patterson Companies, Inc. (PDCO), Cooper Companies (COO), Laboratory Corporation of America Holdings (LH), Henry Schein, Inc. (HSIC) and AmerisourceBergen Corporation (ABC).
Major Trends Shaping the Future of Medical Dental Supplies Industry
Rising Dependence on Teledentistry: Following the COVID-19 outbreak, most of the dental practices were unable to offer routine services in the office. Teledentistry, which is a provision to offer dental services through interactive video, audio or other electronic media to provide consultation, diagnosis and treatment, helped clinicians and patients amid this crisis. In order to enhance patient care, dependence on teledentistry will continue to increase during the pandemic and beyond. For instance, Align Technology (ALGN) recently invested in a number of teledentistry solutions in a bid to make remote check-ups a reality. The launch of digital solutions — Invisalign Virtual Appointment and Invisalign Virtual Care — that enable dental professionals to conduct video consultations with existing Invisalign patients reflect the company’s commitment toward enhancing treatment efficiency. Such initiatives position the company well during the crisis.
Digital Influence: The latest technologies help dentists in carrying out minimally-invasive procedures that ensure precision and efficiency, thereby reducing patients’ trauma. The industry players actively promote digital workflows for general dentistry and dental specialties. Further, dental 3D printers are revolutionizing dentistry. These reduce time and cost through efficient utilization of orthodontics and dental practices. In fact, dental 3D printers are poised to become mainstream in 2020. For instance, DENTSPLY SIRONA (XRAY) has launched a single tooth replacement solution — Azento — in the United States to transform digital-implant workflow in dental care.
AI & Robotics: AI has been shaping the dental industry for quite some time now. This decade is likely to see the rise of computing power, which has become more accessible and affordable for dental practitioners. It will transform the way dentists work and patients receive treatment, especially with the introduction of robot dentists. Robots are now able to perform minimally-invasive dental work like filling cavities and extracting teeth. A report by National Business Capital & Services suggests that AI dentistry had already become mainstream by 2019-end.
Zacks Industry Rank
The Zacks Medical Dental Supplies industry falls within the broader Zacks Medical sector.
It carries a Zacks Industry Rank #190, which places it in the bottom 25% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all member stocks, indicates bleak near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.
Before we present a few dental supplies stocks that you may want to consider for your portfolio, let’s take a look at the industry’s recent stock-market performance and valuation picture.
Industry Outperforms S&P 500 and Sector
The industry has outperformed the Zacks S&P 500 composite and its own sector in the past year.
Stocks in this industry have collectively gained 13.5% compared with the Zacks Medical sector’s rise of 4.3%. Notably, the S&P 500 rallied 11.4% in the same timeframe.
One Year Price Performance
Industry’s Current Valuation
On the basis of the forward 12-month price-to-earnings (P/E) ratio, which is commonly used for valuing medical stocks, the industry is currently trading at 18.93X compared with the S&P 500’s 21.75X and the sector’s 21.84X.
Over the last five years, the industry has traded as high as 19.77X and as low as 13.63X, with the median being at 16.48X, as the charts below show.
Price-to-Earnings Forward Twelve Months (F12M)
Price-to-Earnings Forward Twelve Months (F12M)
3 Promising Dental Supplies Stocks
McKesson Corporation: McKesson is a health care services and information technology company. The company’s first-quarter fiscal 2021 performance exceeded its original expectations. In fact, it raised fiscal 2021 guidance with adjusted earnings per share projected between $14.70 and $15.50 (up from the previously guided range of $13.95 to $14.75). Moreover, the Zacks Rank #3 (Hold) company remains committed to its multi-year strategic growth initiative update that is currently expected to generate approximately $400 million to $500 million in annual pre-tax gross savings. This will be realized substantially by the end of fiscal 2021. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
For this San Francisco, CA-based company, the Zacks Consensus Estimate for 2020 revenues indicate an improvement of 3%. It has a trailing four-quarter earnings surprise of 7.4%, on average.
Price and Consensus: MCK
West Pharmaceutical Services Inc.: West Pharmaceutical manufactures and sells containment and delivery systems for injectable drugs and healthcare products in the United States, Germany, Ireland, France, Other European countries, and internationally. It delivered solid third-quarter 2020 performance, where its base business exhibited robust organic sales growth. The company also witnessed incremental sales related to many COVID-19 development projects that it is supporting for both therapeutics and vaccines. Solid revenue performance, especially in its biologics and generics market units and Contract Manufacturing, contributed to both the bottom and top lines.
For this Exton, PA-based Zacks Rank #2 (Buy) company, the Zacks Consensus Estimate for 2020 revenues indicate an improvement of 11.5%. It has a trailing four-quarter earnings surprise of 22.1%, on average.
Price and Consensus: WST
Cardinal Health, Inc.: Cardinal Health is a nation-wide drug distributor and provider of services to pharmacies, healthcare providers and manufacturers. The company’s Pharmaceutical segment is the second largest pharmaceutical distributor in the United States. The segment's products and services comprise pharmaceutical distribution, manufacturer and specialty services, and nuclear and pharmacy services, which are expected to drive the quarters ahead. Moreover, Cardinal Health’s Medical and Pharmaceutical offerings provide the company with a competitive edge in the niche space. The company remains focused on evolving growth areas with investments and partnerships in Specialty, at Home and Services. The company carries a Zacks Rank of 3.
For this Dublin, OH-based company, the Zacks Consensus Estimate for fiscal 2021 revenues suggests growth of 4.9%. It has a trailing four-quarter earnings surprise of 17.4%, on average.
Price and Consensus: CAH
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DENTSPLY SIRONA Inc. (XRAY): Free Stock Analysis Report
West Pharmaceutical Services, Inc. (WST): Free Stock Analysis Report
Patterson Companies, Inc. (PDCO): Free Stock Analysis Report
McKesson Corporation (MCK): Free Stock Analysis Report
Laboratory Corporation of America Holdings (LH): Free Stock Analysis Report
Henry Schein, Inc. (HSIC): Free Stock Analysis Report
The Cooper Companies, Inc. (COO): Free Stock Analysis Report
Cardinal Health, Inc. (CAH): Free Stock Analysis Report
Becton, Dickinson and Company (BDX): Free Stock Analysis Report
Align Technology, Inc. (ALGN): Free Stock Analysis Report
AmerisourceBergen Corporation (ABC): Free Stock Analysis Report
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