Henry Schein (HSIC, Financial), a leading provider of healthcare products and services, saw a daily loss of 4.64% and a 3-month loss of 23.32%. Despite these losses, the company reported an Earnings Per Share (EPS) (EPS) of 3.42. The question arises: with such performance, is the stock significantly undervalued? This article aims to provide a comprehensive valuation analysis of Henry Schein (HSIC) to answer this question. We invite readers to explore further.
Company Overview
Henry Schein Inc is a solutions company for healthcare professionals, leveraging a robust network of people and technology. The company primarily provides healthcare products and services to office-based dental and medical practitioners. It operates in two reportable segments: healthcare distribution and technology & value-added services. The healthcare distribution segment combines global dental and medical businesses and distributes consumable products, small equipment, laboratory products, and vitamins. The technology and value-added services segment provides software, technology, and other value-added services to healthcare practitioners. The majority of the company's revenue comes from the healthcare distribution segment.
As of November 02, 2023, Henry Schein's stock price stands at $61.1 per share, with a market cap of $8 billion. Interestingly, the company's GF Value, an estimation of its fair value, is $88.79, indicating a significant undervaluation.
Understanding the GF Value
The GF Value is a proprietary measure that represents the current intrinsic value of a stock. It is calculated based on three factors: historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates. The GF Value Line on our summary page provides an overview of the fair value at which the stock should ideally be traded.
If the stock price is significantly above the GF Value Line, it is overvalued, and its future return is likely to be poor. Conversely, if it is significantly below the GF Value Line, its future return will likely be higher. In the case of Henry Schein, the stock appears to be significantly undervalued according to our GF Value calculation. This suggests that the long-term return of its stock is likely to be much higher than its business growth.
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Financial Strength
Companies with poor financial strength pose a high risk of permanent capital loss to investors. To avoid this, one must review a company's financial strength before deciding to purchase shares. Two excellent indicators of financial strength are the cash-to-debt ratio and interest coverage. Henry Schein's cash-to-debt ratio is 0.07, ranking worse than 88.51% of 87 companies in the Medical Distribution industry. However, the overall financial strength of Henry Schein is 6 out of 10, indicating that its financial strength is fair.
Profitability and Growth
Investing in profitable companies, especially those with consistent profitability over the long term, is less risky. A company with high profit margins is usually a safer investment than those with low profit margins. Over the past ten years, Henry Schein has been profitable. Over the past twelve months, the company had a revenue of $12.60 billion and an Earnings Per Share (EPS) of $3.42. Its operating margin is 6.65%, ranking better than 72.53% of 91 companies in the Medical Distribution industry. Overall, the profitability of Henry Schein is ranked 8 out of 10, indicating strong profitability.
Growth is probably the most important factor in the valuation of a company. Faster-growing companies are more likely to be creating value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth rate of Henry Schein is 11.1%, ranking better than 69.88% of 83 companies in the Medical Distribution industry. However, the 3-year average EBITDA growth rate is 4.9%, ranking worse than 65.71% of 70 companies in the Medical Distribution industry.
ROIC vs WACC
Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. For the past 12 months, Henry Schein's return on invested capital is 9.78, and its cost of capital is 8.27, suggesting that the return on invested capital is higher than the weighted cost of capital.
Conclusion
In summary, the stock of Henry Schein (HSIC, Financial) appears to be significantly undervalued. The company's financial condition is fair, and its profitability is strong. However, its growth ranks worse than 65.71% of 70 companies in the Medical Distribution industry. To learn more about Henry Schein stock, you can check out its 30-Year Financials here.
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This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
