One of Wall Street's biggest winners of the day is Henry Schein, a medical specialities company whose shares have climbed 3.3% to a price of $68.76 -- 8.1% below its average analyst target price of $74.82.
The average analyst rating for the stock is hold. HSIC may have outstripped the S&P 500 index by 4.0% so far today, but it has lagged behind the index by 28.9% over the last year, returning 0.2%.
Henry Schein, Inc. provides health care products and services to dental practitioners, laboratories, physician practices, and ambulatory surgery centers, government, institutional health care clinics, and other alternate care clinics worldwide. The company is part of the healthcare sector. Healthcare companies work in incredibly complex markets, and their valuations can change in an instant based on a denied drug approval, a research and development breakthrough at a competitor, or a new government regulation. In the longer term, healthcare companies are affected by factors as varied as demographics and epidemiology. Investors who want to understand the healthcare market should be prepared for deep dives into a wide range of topics.
Henry Schein's trailing 12 month P/E ratio is 28.2, based on its trailing EPS of $2.44. The company has a forward P/E ratio of 13.2 according to its forward EPS of $5.2 -- which is an estimate of what its earnings will look like in the next quarter.
The P/E ratio is the company's share price divided by its earnings per share. In other words, it represents how much investors are willing to spend for each dollar of the company's earnings (revenues minus the cost of goods sold, taxes, and overhead). As of the third quarter of 2024, the health care sector has an average P/E ratio of 26.07, and the average for the S&P 500 is 29.3.
To better understand the strength of Henry Schein's business, we can analyse its gross profits, which are its revenues minus its cost of goods sold only. The extent of gross profit margins implies how much freedom the company has in setting the prices of its products. A wider gross profit margin indicates that a company may have a competitive advantage, as it is free to keep its product prices high relative to their cost.
HSIC's gross profit margins have averaged 28.7% over the last four years. While not particularly impressive, this level of margin at least indicates that the basic business model of the company is consistently profitable. These margins have slightly increased over the last four years, with an average growth rate of 3.2%. Henry Schein's financial viability can also be assessed through a review of its free cash flow trends. Free cash flow refers to the company's operating cash flows minus its capital expenditures, which are expenses related to the maintenance of fixed assets such as land, infrastructure, and equipment. Over the last four years, the trends have been as follows:
| Date Reported | Cash Flow from Operations ($ k) | Capital expenditures ($ k) | Free Cash Flow ($ k) | YoY Growth (%) |
|---|---|---|---|---|
| 2023 | 500,000 | 147,000 | 353,000 | -30.24 |
| 2022 | 602,000 | 96,000 | 506,000 | -19.81 |
| 2021 | 710,000 | 79,000 | 631,000 | 14.73 |
| 2020 | 599,000 | 49,000 | 550,000 | -4.82 |
| 2019 | 654,087 | 76,219 | 577,868 | -5.8 |
| 2018 | 684,706 | 71,283 | 613,423 |
- Average free cash flow: $538.55 Million
- Average free cash flown growth rate: -9.9 %
- Coefficient of variability (lower numbers indicating more stability): 0.0 %
Free cash flow represents the amount of money that is available for reinvesting in the business, or for paying out to investors in the form of a dividend. With a positive cash flow as of the last fiscal year, HSIC is in a position to do either -- which can encourage more investors to place their capital in the company.
Another valuation metric for analyzing a stock is its Price to Book (P/B) Ratio, which consists in its share price divided by its book value per share. The book value refers to the present liquidation value of the company, as if it sold all of its assets and paid off all debts.
Henry Schein has a P/B ratio of 2.46. This indicates that the market value of the company exceeds its book value by a factor of more than 2, but is still below the average P/B ratio of the Health Care sector, which stood at 3.53 as of the third quarter of 2024.
Henry Schein is by most measures overvalued because it has an average P/E ratio, a lower P/B ratio than its sector average, and positive cash flows with a downwards trend. The stock has poor growth indicators because it has a an inflated PEG ratio and decent operating margins with a stable trend. We hope you enjoyed this overview of HSIC's fundamentals.
