Will Henry Schein Stock See Higher Levels After A 16% Fall This Year?

HSIC: Henry Schein logo
HSIC
Henry Schein

Henry Schein stock (NASDAQ: HSIC), a healthcare products and services distributor, trades at $67 per share, marginally below the level seen in March 2021. HSIC stock was trading at around $77 in early June 2022, just before the Fed started increasing rates, and is now 13% below that level, compared to 21% gains for the S&P 500 during this period.

Looking at a slightly longer term, HSIC stock has seen little change, moving slightly from levels of $65 in early January 2021 to around $65 now, vs. an increase of about 20% for the S&P 500 over this roughly 3-year period. Overall, the performance of HSIC stock with respect to the index has been quite volatile. Returns for the stock were 16% in 2021, 3% in 2022, and -16% in 2023 (YTD). In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 19% in 2023 (YTD) – indicating that HSIC underperformed the S&P in 2021 and 2023.

In fact, consistently beating the S&P 500 – in good times and bad – has been difficult over recent years for individual stocks; for heavyweights in the Health Care sector, including LLY, UNH, and JNJ, and even for the megacap stars GOOG, TSLA, and MSFT. In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index, less of a roller-coaster ride, as evident in HQ Portfolio performance metrics.

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Given the current uncertain macroeconomic environment with high oil prices and elevated interest rates, could HSIC face a similar situation as it did in 2021 and 2023 and underperform the S&P over the next 12 months – or will it see a strong jump?  Returning to the pre-inflation shock high of over $90 (seen in April 2022) means that HSIC stock will have to gain more than 35% from here, and we don’t think that will materialize anytime soon. That said, HSIC stock currently trades at 0.9x revenues, below its last seven quarters average of 1.1x, and appears to have some room for growth. Our detailed analysis of Henry Schein’s upside post-inflation shock captures trends in the company’s stock during the turbulent market conditions seen over 2022. It compares these trends to the stock’s performance during the 2008 recession.

2022 Inflation Shock
Timeline of Inflation Shock So Far:

  • 2020 – early 2021: Increase in money supply to cushion the impact of lockdowns led to high demand for goods; producers unable to match up.
  • Early 2021: Shipping snarls and worker shortages from the coronavirus pandemic continue to hurt supply.
  • April 2021: Inflation rates cross 4% and increase rapidly.
  • Early 2022: Energy and food prices spike due to the Russian invasion of Ukraine. Fed begins its rate hike process.
  • June 2022: Inflation levels peak at 9% – the highest level in 40 years. The S&P 500 index declined more than 20% from peak levels.
  • July – September 2022: Fed hikes interest rates aggressively – resulting in an initial recovery in the S&P 500 followed by another sharp decline.
  • October 2022 – July 2023: Fed continues rate hike process; improving market sentiments helps S&P500 recoup some of its losses.
  • Since August 2023: Fed has kept interest rates unchanged to quell fears of a recession, although another rate hike remains in the cards.

In contrast, here’s how HSIC stock and the broader market performed during the 2007/2008 crisis.

Timeline of 2007-08 Crisis

  • 10/1/2007: Approximate pre-crisis peak in S&P 500 index
  • 9/1/2008 – 10/1/2008: Accelerated market decline corresponding to Lehman bankruptcy filing (9/15/08)
  • 3/1/2009: Approximate bottoming out of S&P 500 index
  • 12/31/2009: Initial recovery to levels before accelerated decline (around 9/1/2008)

Henry Schein and S&P 500 Performance During 2007-08 Crisis

HSIC stock declined from nearly $24 in September 2007 (pre-crisis peak) to $14 in March 2009 (as the markets bottomed out), implying it lost 41% of its pre-crisis value. It recovered after the 2008 crisis to levels of around $21 in early 2010, rising over 43% between March 2009 and January 2010. The S&P 500 Index saw a decline of 51%, falling from levels of 1,540 in September 2007 to 757 in March 2009. It then rallied 48% between March 2009 and January 2010 to reach levels of 1,124.

Henry Schein’s Fundamentals Over Recent Years

Henry Schein’s revenue increased from $10.0 billion in 2019 to $12.7 billion in the last twelve months, led by increased demand for its dentistry business. The company also benefited from the sale of COVID-19 testing kits and personal protective equipment during the pandemic. However, this trend has now reversed with a decline in sales of COVID-19-related products. Still, the company has managed to post sales growth in recent quarters owing to the impact of its recent acquisitions, including Condor Dental in 2022 and a majority interest in Shield Healthcare this year.

The company’s earnings stood at $5.38 on a per-share and adjusted basis in 2022, compared to the $3.51 figure in 2019. Given the falling sales for COVID-19 products and weak macroeconomic conditions, the company lowered its 2023 earnings outlook to now be in the range of $5.18 and $5.26, compared to its previous guidance of $5.18 to $5.35 in earnings.

Does Henry Schein Have A Sufficient Cash Cushion To Meet Its Obligations Through The Ongoing Inflation Shock?

Henry Schein’s total debt increased from $1.0 billion in 2019 to $1.9 billion now, while its cash remained around $0.1 billion over this period. The company also garnered $0.6 billion in cash flows from operations in 2022. Given its cash cushion, Henry Schein appears to be in a position to service its near-term obligations.

Conclusion

With the Fed’s efforts to tame runaway inflation rates helping market sentiment, we believe HSIC stock has the potential for more gains once fears of a potential recession are allayed. That said, unfavorable macroeconomic factors remain a potential risk for realizing these gains.

While HSIC stock can see higher levels, it is helpful to see how Henry Schein’s Peers fare on metrics that matter. You will find other valuable comparisons for companies across industries at Peer Comparisons.

 Returns Dec 2023
MTD [1]
2023
YTD [1]
2017-23
Total [2]
 HSIC Return 0% -16% 12%
 S&P 500 Return 0% 19% 104%
 Trefis Reinforced Value Portfolio 0% 28% 558%

[1] Month-to-date and year-to-date as of 12/1/2023
[2] Cumulative total returns since the end of 2016

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