Henry Schein: Updated Research Report - Analyst Blog

On Jun 11, 2014, we issued an updated research report on Henry Schein Inc. HSIC, a leading distributor of health care products and services across the globe. Despite being plagued by challenging economic conditions, a competitive environment and currency headwinds, Henry Schein managed to post solid first-quarter 2014 results with both its top and bottom line steering ahead of the respective Zacks Consensus Estimate.

Year-over-year growth at both fronts is also indicative of the company's consistent growth via organic and inorganic means. We are, at the same time, encouraged by the global performance of the company during the first quarter. The stock currently carries a Zacks Rank #3 (Hold).

Henry Schein's adjusted EPS of $1.18 in the first quarter of 2014 increased 11.3% year over year and beat the Zacks Consensus Estimate by 4.4%. Revenues rose 6.1% to $2.43 billion, edging past the Zacks Consensus Estimate of $2.42 billion.

Henry Schein's revenue growth has been consistently supported by niche buyouts. Evidently, the company has been on an acquisition spree over the recent past. Its acquisition strategy helps it to pursue targets that provide access to additional product lines.

In the quarter, Henry Schein forayed into the Brazilian dental market with a 50% ownership investment in Dental Speed Graph. This investment not only marks Henry Schein's entry into Brazil, but also represents the company's first operation in South America. With this recent ownership stake, Henry Schein now has operations across 27 countries.In Feb 2014, Henry Schein took over four distributors serving dentists and dental laboratories in France, the Netherlands and Belgium, from a Dutch company, Arseus NV. According to Henry Schein, these businesses will strengthen its European Dental and Technology operations going forward.

Moreover, Henry Schein is well positioned to gain from its extensive global foothold and diverse channel mix. Favorable market dynamics will serve as a major growth catalyst going forward. We believe that high-growth avenues like the animal health market should benefit Henry Schein's growth profile. We are also encouraged to find that in spite of the austerity measures in Europe, Henry Schein continues to garner market share in the Dental segment.

However, on the flip side, the European economy and macroeconomic uncertainty remain as overhangs. Intense competition and currency headwinds warrant further caution. Moreover, as group purchasing organizations (GPO) gain prominence, pricing pressure is inevitable.

Other Stocks to Consider

Better-ranked stocks that warrant a look in the broader medical sector include Amedisys Inc. AMED, RadNet, Inc. RDNT and HEALTHSOUTH Corp. HLS. All these stocks carry a Zacks Rank #2 (Buy).

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