The introduction of advanced technologies has unlocked fresh opportunities for the healthcare industry. Moreover, healthcare stocks tend to perform relatively well despite economic headwinds, thanks to inelastic demand for their products and services.
So, I think quality healthcare stocks Abbott Laboratories (ABT), Centene Corporation (CNC), and McKesson Corporation (MCK) are worth owning now.
The healthcare sector in the United States is enormous. As per the Centers for Medicare and Medicaid Services, US national healthcare expenditure is estimated to reach $6.2 trillion by 2028.
Additionally, the growing market for personalized medicine is strengthening the healthcare industry. The worldwide market for tailored medications is estimated to attain a valuation of $740.30 billion by 2030, expanding at a CAGR of 4.8%.
Moreover, telehealth has seen significant popularity in recent years. Following the pandemic, funding has been flowing in the sector, and the telehealth market is projected to grow at a CAGR of 24% from 2023 to 2030.
Take a detailed look at the stocks mentioned above:
Abbott Laboratories (ABT)
ABT discovers, develops, manufactures, and sells healthcare products worldwide. It operates in four segments: Established Pharmaceutical Products; Diagnostic Products; Nutritional Products; and Medical Devices.
On March 5, ABT announced late-breaking data for MitraClip, the leading therapy to treat leaky valves in people with mitral regurgitation, demonstrating the device’s long-term benefits in patients battling heart failure.
The five-year results from the landmark COAPT trial show MitraClip are safe and effective and can cut the rate of hospitalizations while improving survival for heart failure patients with severe secondary (or functional) MR, a condition which has historically been extremely challenging to treat. This should boost the company’s topline.
Its trailing 12-month EBITDA margin of 27.73% is 678.3% higher than the 3.56% industry average. Its trailing 12-month gross profit margin of 56.31% is 1.4% higher than the 55.54% industry average.
On February 17, ABT announced a dividend of $0.51 per share, payable on May 15, 2023.
ABT pays $2.04 annually as dividends. This translates to a yield of 1.95% on the current price, compared to the 4-year average dividend yield of 1.51%. Its dividend payments have grown at a CAGR of 13.3% over the past three years. Also, it has paid dividends for 33 consecutive years.
ABT’s net sales increased 1.3% year-over-year to $43.65 billion in the fiscal year, which ended December 31, 2022. The company’s adjusted net earnings rose 1.1% year-over-year to $9.47 billion, while its adjusted EPS increased 2.5% year-over-year to $5.34.
Analysts expect ABT’s revenue for the fiscal first quarter ending March 2023 to be $9.65 billion. The company’s EPS for the same quarter is expected to be $0.99. Additionally, it has topped the consensus revenue and EPS estimates in each of the trailing four quarters, which is impressive.
The stock gained marginally over the past six months to close the last trading session at $102.75.
ABT’s POWR Ratings reflect its promising outlook. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
ABT also has a B grade for Stability, Sentiment, Value, and Quality. It is ranked #10 of 142 stocks in the Medical - Devices & Equipment industry.
To access additional ratings for ABT’s Growth and Momentum, click here.
McKesson Corporation (MCK)
MCK provides healthcare services in the United States and internationally. It operates through four segments: U.S. Pharmaceutical; International; Medical-Surgical Solutions; and Prescription Technology Solutions.
Its trailing 12-month Asset Turnover Ratio of 4.33x is significantly higher than the 0.34x industry average.
On January 26, MCK declared a quarterly dividend of $0.54 per share, payable on April 3, 2023.
The company pays a $2.16 dividend annually, which translates to a yield of 0.62% at the current price. It has a 4-year average dividend yield of 0.90%. Its dividend payments have grown at CAGRs of 8.9% and 10% over the past three and five years, respectively. Also, it has paid dividends for 23 consecutive years.
MCK’s revenue rose 2.7% year-over-year to $70.49 billion in the fourth quarter that ended December 31, 2022. Adjusted earnings increased 3% year-over-year to $972 million, while its adjusted EPS increased 12.2% year-over-year to $6.90.
Street’s EPS estimate for the fiscal first quarter (ending March 2023) of $7.11 reflects a rise of 21.9% year-over-year. Its revenue estimate for the same quarter of $68.08 billion indicates an improvement of 3% from the prior-year period. Additionally, MCK has topped consensus revenue estimates in three of the trailing four quarters.
The stock has gained 9.5% over the past nine months to close the last trading session at $347.89.
MCK’s robust prospect is reflected in its POWR Ratings. The stock has an overall A rating, equating to a Strong Buy in our proprietary rating system.
MCK has an A grade for Growth and Value and a B for Stability and Sentiment. It is ranked first out of 77 stocks in the Medical - Services industry.
Click here to see the additional POWR Ratings for MCK (Quality and Momentum).
Centene Corporation (CNC)
CNC operates as a healthcare enterprise that provides programs and services to under-insured and uninsured families, commercial organizations, and military families in the United States. It operates in two segments: Managed Care and Specialty Services.
Its trailing 12-month EBITDA margin of 4.36% is 22.4% higher than the 3.56% industry average. Its trailing 12-month Asset Turnover Ratio of 1.75x is 415.6% higher than the 0.34x industry average.
On January 3, the company’s Health Net of California subsidiary was granted new Medi-Cal direct contracts by the California Department of Health Care Services (DHCS). This should help CNC expand its customer base and boost its revenue streams.
During the fiscal 2022 fourth quarter ended December 31, 2022, CNC’s total revenue increased 9.2% year-over-year to $35.56 billion. Its premium revenue increased 10.4% year-over-year to $31.88 billion. Its adjusted net earnings came in at $485 million. In addition, the company’s adjusted EPS came in at $0.86.
CNC’s EPS is expected to rise 9.6% year-over-year to $2.01 for the current first quarter ending March 2023. The company’s revenue for the same period is expected to be $36.31 billion. Additionally, it has topped consensus revenue and EPS estimates in each of the trailing four quarters.
Shares of CNC declined marginally intraday to close the last trading session at $68.96.
CNC’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, equating to a Strong Buy in our proprietary rating system.
The stock has a B grade for Value and Quality. It is ranked #3 out of 10 stocks in the A-rated Medical - Health Insurance.
Beyond what is stated above, we’ve also rated CNC for Growth, Stability, Sentiment, and Momentum. Get all CNC ratings here.
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ABT shares . Year-to-date, ABT has declined -5.99%, versus a 5.76% rise in the benchmark S&P 500 index during the same period.
About the Author: Kritika Sarmah
Her interest in risky instruments and passion for writing made Kritika an analyst and financial journalist. She earned her bachelor's degree in commerce and is currently pursuing the CFA program. With her fundamental approach, she aims to help investors identify untapped investment opportunities.
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