On Tuesday, CFRA downgraded shares of Henry Schein (NASDAQ:HSIC), a distributor of healthcare products and services, from Hold to Sell. Alongside the downgrade, the firm also reduced the price target from $72.00 to $67.00. The new target price is based on 12.7 times the firm's 2025 earnings per share (EPS) estimate, which has been adjusted down by $0.25 to $5.29. The revised target reflects a discount to Henry Schein's historical forward average, acknowledging the current weakness in dental product distribution.
The firm has slightly increased its 2024 EPS estimate for Henry Schein by $0.01 to $4.77. However, the company is still grappling with the aftereffects of a significant cybersecurity incident that occurred a year ago, which has impeded its sales and earnings growth. Furthermore, Henry Schein has revised its 2024 guidance downwards on multiple occasions.
Recent statements from the company indicate that while end-market patient volumes are stable, they are not increasing at a rate that would meaningfully enhance Henry Schein's profitability. CFRA notes that the company is concentrating on improving margins through various cost-cutting strategies and that a declining interest rate environment might ease some financial pressures for Henry Schein's customers.
Despite these efforts, CFRA maintains a cautious stance on Henry Schein's prospects for 2025. The firm suggests that additional guidance, expected to be provided during the company's third-quarter earnings call on November 5, could shed more light on the outlook.
Given the uncertainties and the analyst's perspective, CFRA sees more attractive near-term investment opportunities in pharmaceutical distributors compared to non-pharmaceutical distributors such as Henry Schein.
InvestingPro Insights
To complement CFRA's analysis, recent data from InvestingPro offers additional context on Henry Schein's financial position. The company's market capitalization stands at $9.03 billion, with a P/E ratio of 22.86 based on the last twelve months as of Q2 2024. This valuation metric aligns with CFRA's cautious stance, as it suggests the stock may be trading at a premium relative to earnings.
InvestingPro Tips highlight that management has been aggressively buying back shares, which could be seen as a vote of confidence in the company's long-term prospects despite current challenges. Additionally, the stock generally trades with low price volatility, which may appeal to investors seeking stability in uncertain market conditions.
It's worth noting that Henry Schein's revenue for the last twelve months as of Q2 2024 was $12.49 billion, with a slight revenue growth of 1.16% in the most recent quarter. This modest growth, coupled with the company's profitability over the last twelve months, supports CFRA's observation of stable but not rapidly increasing end-market patient volumes.
For investors seeking a more comprehensive analysis, InvestingPro offers 5 additional tips that could provide further insights into Henry Schein's financial health and market position. These additional tips, along with real-time metrics, can be valuable for investors looking to make informed decisions in the healthcare distribution sector.
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