The U.S. healthcare index has rewarded investors with the best returns so far this year, outperforming the benchmark S&P 500 index, driven primarily by President Barack Obama’s Affordable Care Act overhaul. During 2014, the S&P health care index has gained over 11.9% compared to the benchmark index returns of 6.8%. Meanwhile, the smallcap Russell 2000 health care Index has also advanced over 6.5% compared to the main index returns of 3.1% this year. However, stock valuations in the healthcare sector are relatively high, in our view. The price-to-earnings multiple for the sector index is 21, up from 19 at the beginning of the year in comparison to the S&P 500?s earnings multiple is 18.1, according to data provided by Bloomberg.
According to the data provided by Thomson Reuters, earnings growth forecasts of the healthcare companies for 2014 have increased to 12.2% currently from 8.3% at the beginning of January on the back of new higher priced biotech drugs in the market and increasing insurance enrollments under the Affordable Care Act. Meanwhile, estimates of analysts polled by Bloomberg show that the profits for the healthcare companies are likely to increase 17% in 2014. It is expected that the revamp in the healthcare act could be a long-term source of profit growth for managed care providers.
Today we have picked 10 U.S. healthcare stocks which appear to be fairly valued with strong growth prospects in 2014. The shortlisted stocks have registered strong growth in sales and EPS with strong EBITDA margin during 2013 and are estimated to report strong growth in sales and EPS in 2014. We note that these stocks trading at low forward PE multiple over their current PE. Moreover, these stocks have high Return on Equity (ROE). During the past three months, majority of the shortlisted stocks have accumulated gains with daily average traded volume in excess of 100,000.
|
Company Name |
Exchange |
Ticker |
Market Cap |
Last Price |
Average Volume |
Price Change |
Sales Growth |
Sales Growth |
EBITDA Margin |
EPS Growth |
EPS Growth |
1-Yr Fwd PE Ratio |
Return On Equity |
|
Myriad Genetics Inc |
NASDAQ |
MYGN |
2.9 |
38.44 |
1,613,717 |
-4.5% |
23.6% |
26.5% |
38.6% |
36.8% |
35.2% |
16.1 |
26.9% |
|
Charles River Laboratories International |
NYSE |
CRL |
2.6 |
54.15 |
562,071 |
-11.9% |
3.2% |
9.7% |
21.6% |
2.8% |
9.4% |
16.9 |
16.5% |
|
Bio-Reference Labs Inc |
NASDAQ |
BRLI |
0.9 |
31.13 |
293,015 |
9.3% |
16.5% |
12.9% |
14.2% |
8.6% |
1.8% |
18.5 |
14.7% |
|
Patterson Cos Inc |
NASDAQ |
PDCO |
4.1 |
39.53 |
833,282 |
-8.1% |
2.9% |
6.9% |
11.0% |
5.7% |
7.7% |
17.5 |
14.0% |
|
Prestige Brands Holdings |
NYSE |
PBH |
1.8 |
34.44 |
372,637 |
25.8% |
41.4% |
17.0% |
32.9% |
74.3% |
17.3% |
19.2 |
14.0% |
|
IPC The Hospitalist Co |
NASDAQ |
IPCM |
0.8 |
46.16 |
164,353 |
-7.7% |
16.4% |
17.4% |
10.9% |
24.9% |
9.9% |
19.2 |
13.7% |
|
STERIS Corp |
NYSE |
STE |
3.2 |
54.18 |
310,300 |
5.6% |
6.8% |
16.1% |
20.7% |
17.6% |
15.2% |
19.0 |
13.1% |
|
ICON PLC |
NASDAQ |
ICLR |
3.0 |
48.04 |
655,250 |
-0.4% |
19.8% |
12.9% |
13.2% |
82.9% |
29.0% |
20.3 |
12.3% |
|
Owens & Minor Inc |
NYSE |
OMI |
2.2 |
34.51 |
493,172 |
-3.0% |
2.3% |
1.4% |
2.9% |
2.3% |
3.5% |
17.6 |
11.0% |
|
Amsurg Corp |
NASDAQ |
AMSG |
1.5 |
47.49 |
427,015 |
-3.7% |
16.9% |
10.8% |
33.9% |
14.9% |
10.3% |
19.3 |
9.7% |
Source: Bloomberg
Company Description:
Myriad Genetics Inc (NASDAQ: MYGN)
Myriad Genetics, Inc. develops and markets molecular diagnostic products to provide physicians with information to help guide the care of their patients, to prevent disease, delay the onset of disease, or catch disease at an early stage.
Charles River Laboratories International Inc (NYSE: CRL)
Charles River Laboratories International, Inc. provides research tools and support services that enable drug discovery and development. The company provides the animal research models required in research and development for new drugs, devices, and therapies. Charles River’s customers include pharmaceutical and biotechnology companies, hospitals, and academic institutions.
Bio-Reference Labs Inc (NASDAQ: BRLI)
Bio-Reference Laboratories, Inc. operates an independent clinical laboratory in the Northeast United States. The company’s laboratory has specialty capability in the areas of genomics, oncology, correctional health, and complementary medicine. Bio-Reference also offers information solutions for reducing healthcare costs and improving quality performance.
Patterson Cos Inc (NASDAQ: PDCO)
Patterson Companies Inc. distributes dental products, veterinary supplies for companion pets, and rehabilitation supplies. The company sells and markets to dental clinics and laboratories, veterinarians, and to the physical and occupational therapy markets.
Prestige Brands Holdings Inc (NYSE: PBH)
Prestige Brands Holdings, Inc. distributes over-the-counter healthcare and household cleaning products to retail stores in the United States, Canada and other international markets. The company distributes oral, eye and skin care; cough, cold, allergy and sinus; and household cleansers, sponges, scrubbers and cleaning pads.
IPC The Hospitalist Co Inc (NASDAQ: IPCM)
IPC The Hospitalist Co provides physician practice management solutions. The company’s services include staffed hospitalist programs and outsourced services.
STERIS Corp (NYSE: STE)
STERIS Corporation provides sterilization, microbial reduction, and materials modification services to customers throughout the world. The company’s customers include the medical device, pharmaceutical, biotechnology, food safety, and industrial markets. STERIS also markets a line of cleaning, decontamination, and sterilization systems, products, and technologies.
ICON PLC (NASDAQ: ICLR)
ICON PLC provides contract clinical research services to the global pharmaceutical industry. The company manages clinical studies in addition to providing data management, regulatory, and central laboratory services. ICON currently operates offices in multiple countries.
Owens & Minor Inc (NYSE: OMI)
Owens & Minor, Inc. distributes medical/surgical supplies throughout the United States. The company’s customers include hospitals, integrated healthcare systems, and group purchasing organizations. Owens & Minor also provides services in supply chain management, logistics, and technology.
Amsurg Corp (NASDAQ: AMSG)
AmSurg Corporation develops, acquires, and manages physician practice-based ambulatory surgery centers and specialty physician networks. The company operates in partnership with surgical and other group physician practices.
