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4 Stocks to Buy Amid Dental Supplies Industry Challenges

The Zacks Medical - Dental Supplies industry in the Medical sector has shown a positive trend in 2024 as product sales continue to rise. The recent uptick in the sale of dental products and services can be primarily linked to the lifting of limitations associated with the pandemic over the last few years. Also, the major players in the industry have been taking initiatives like cost-cutting and price improvement to improve their margins, post the pandemic. Factors fueling the dental market include the prevalent incidence of oral health conditions, the demographic trend of an aging society, a growing interest in aesthetic dental treatments and advancements in dental technology. The sector is anticipated to continue its expansion as it evolves and introduces novel treatments and procedures to cater to the evolving healthcare needs of patients. Going by the Fortune Business Insight data, the global dental industry is expected to reach $95.37 billion by 2032 at a CAGR of 11.8% (from the 2023 level).

However, the current high interest rate regime is likely to continue to increase the cost of capital. The Fed has kept the interest rates unchanged during its meet earlier this month. Other macro headwinds, like supply-chain constraints due to ongoing wars, are hurting the margins of the industry players. These are likely to continue in 2024, subduing earnings growth. Industry participants like McKesson MCK, West Pharmaceutical Services WST, Align Technology ALGN and Henry Schein HSIC have shown encouraging trends amid uncertain times and are likely to gain from the existing market opportunities.

Industry Description

The global dental industry consists of companies that design, develop, make and market dental products, such as consumables, laboratory products and specialty items. Some of these companies also offer software and systems for practice management, patient education and office administration. Dental stocks have been attracting attention amid a recovery in sales after the weakness faced amid the pandemic-induced disruptions. The market has been recovering and maintaining its position. Notably, dental care is being provided by following the advice and recommendations of the American Dental Association and CDC. Thanks to the rebound seen by the companies in this space, patient volume has been increasing steadily despite the COVID-19 uncertainty.

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Major Trends Shaping the Future of the Medical Dental Supplies Industry

Increasing Burden of Oral Diseases and an Aging Population: The dental equipment market in the United States is being driven by the country's growing geriatric population. This group is a significant demographic in dental surgeries and other dental practices. Per the United States Census Bureau, the country had 54.1 million people aged 65 and above in 2020. Old age increases the likelihood of dental issues such as cavities, root and coronal caries, and periodontitis. Consequently, the rising number of seniors in the country is a key contributor to the market’s growth.

Demand for Esthetic and Cosmetic Dentistry: The dental equipment market in the United States is growing due to the demand for esthetic and cosmetic dentistry. People, influenced by Internet strategies, current trends and media coverage, want to improve their dental appearance. Cosmetic dentistry, which started in the United States, has led to many innovations in the field. Patients in the country are looking for procedures that can enhance their smile, as well as restore dental function. This trend is boosting the growth of the U.S. dental equipment market.

Technological Advancements: Dental procedures are changing with new technologies like digital imaging, laser dentistry and CAD/CAM systems. These technologies make treatments more accurate and effective, leading to better results. Also, new materials have been developed that are stronger, more compatible and attractive, giving dental practitioners more options for supplies.

Zacks Industry Rank

The Zacks Medical Dental Supplies industry falls within the broader Zacks Medical sector.

It carries a Zacks Industry Rank #179, which places it in the bottom 28% of 249 Zacks industries.

The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all member stocks, indicates bright near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.

Before we present a few dental supply stocks that you may want to consider for your portfolio, let’s take a look at the industry’s recent stock-market performance and valuation picture.

Industry Performance

The industry has underperformed its sector as well as the S&P 500 composite in the past year.

Stocks in this industry have collectively gained 2.2% compared with the Zacks Medical sector’s growth of 4.5%. The S&P 500 has increased 13.6% in the same time frame.

One-Year Price Performance

Industry's Current Valuation

On the basis of the forward 12-month price-to-earnings (P/E) ratio, which is commonly used for valuing medical stocks, the industry is currently trading at 17.9X compared with the S&P 500’s 20.8X and the sector’s 21.3X.

Over the last five years, the industry has traded as high as 20.9X and as low as 14.9X, with the median being 18.5X, as the charts show.

Price-to-Earnings Forward Twelve Months (F12M)

Price-to-Earnings Forward Twelve Months (F12M)

4 Promising Dental Supply Stocks

McKesson: A healthcare services and information technology company, McKesson operates through two segments. The Distribution Solutions segment distributes branded and generic pharmaceutical drugs, along with other healthcare-related products worldwide. The segment also provides practice management, technology, clinical support and business solutions to community-based oncology and other specialty practices. It also provides specialty pharmaceutical solutions for pharmaceutical manufacturers. The Technology Solutions segment provides enterprise-wide clinical, patient care, financial, supply-chain and strategic management software solutions.

Strong growth in the U.S. markets, especially for pharmaceutical and specialty solutions, drove McKesson’s top line by 12% year over year in the fourth quarter of fiscal 2024. The growth in the distribution of specialty products to providers and health systems, and increased contributions from its generics program aided the top-line improvement. However, inflationary pressure continues to hurt margins. The company expects adjusted earnings per share (EPS) in the range of $31.25-$32.05 for fiscal 2025, implying a year-over-year improvement of 14-17%. Revenues are expected to grow 15-17% compared with the fiscal 2024 level.

For this San Francisco, CA-based company, the Zacks Consensus Estimate for fiscal 2025 revenues indicates growth of 14.8% from the year-ago reported figure, while the same for earnings implies an increase of 14.7%. McKesson has a trailing four-quarter average earnings surprise of 8.38%. Presently, the company carries a Zacks Rank #3 (Hold).

Price and Consensus: MCK

West Pharmaceutical Services is a leading global manufacturer with respect to the design and production of technologically advanced, high-quality, integrated containment and delivery systems for injectable drugs and healthcare products. It operates under two segments — Proprietary Products and Contract-Manufactured Products. The Proprietary Products segment provides packaging, containment and drug delivery products, together with analytical lab services and other integrated services and solutions, mainly to biologic, generic and pharmaceutical drug customers. The Contract-Manufactured Products segment acts as a fully integrated business, which remains committed to the design, manufacture and automated assembly of complex devices.

The company’s top-line decline during the first quarter of 2024 was driven by Proprietary Products' lower high-value product sales and weak Generic product sales. However, higher Contract Manufacturing component sales and continued demand for NovaPure and self-injection device platforms partially offset the decline.

West Pharmaceutical Servicesexpects EPS in the $7.50-$7.75 range for 2024.

The Zacks Consensus Estimate for 2024 revenues indicates growth of 2% from the year-ago reported figure, while the same for earnings implies a decline of 4%. WST has a trailing four-quarter average earnings surprise of 12.02%. It carries a Zacks Rank of 3 at present.

Price and Consensus: WST

Align Technology manufactures and markets a system of clear aligner therapy, intra-oral scanners and CAD/CAM digital services used in dentistry, orthodontics and dental records storage. The initial adoption of the recently launched Invisalign Comprehensive product is favorable and holds the potential for faster revenue recognition than the traditional ones.In the next one to three years, Align Technology expects to strengthen its existing offerings with the newest technologies and innovations.

The company’s top line gained 5.8% in the last reported quarter. The upside reflects revenue growth across the regions from strong year-over-year volume growth across APAC markets and the EMEA region. Meanwhile, the strengthening of the U.S. dollar against nearly every other major currency hampered Align Technology’s revenues in the international markets. The company expects total revenue growth of 6-8% for 2024. ALGN expects its adjusted operating margin to be slightly up year over year.

The Zacks Consensus Estimate for 2024 earnings and revenues indicates year-over-year growth of 6.8% and 11.5%, respectively. Currently, the company holds a Zacks Rank of 3. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Price and Consensus: ALGN

Henry Schein: A leading distributor of health care products and services across the globe, Henry Schein serves office-based dental, medical and animal health practitioners, dental laboratories, government as well as institutional health care clinics and other alternate-care sites. Additionally, the company offers other value-added services such as practice management software, e-commerce solutions and an array of financial services.

Henry Schein boasts a wide global footprint with 61 distribution centers. Apart from North America and Canada, the company has its presence in Australia and New Zealand as well as emerging nations like China, Brazil, Israel, the Czech Republic and Poland. HSIC’s worldwide reach provides it with a major competitive advantage over other players in the healthcare distribution industry.

In the first quarter of 2024, the company performed well. Growth in the Technology and Value-added Services business was strong in the international market during the first quarter, banking on the strength of the Dentally cloud-based solution. Development in North America was driven by the sales of its practice management software. Sales growth in the Medical business continued to be robust, reflecting higher patient traffic to alternate care sites. Widespread network and channel mix and favorable long-term trends in the dental business are likely to drive future growth. However, severe currency headwinds are likely to continue to hurt the top line in 2024.

Henry Schein expects year-over-year sales growth of nearly 8-10% in 2024. The company expects 2024 adjusted EPS to be in the range of $5.00-$5.16, which suggests 11-15% growth from the 2023 reported figure.

For this Melville, NT-based company, the Zacks Consensus Estimate for 2024 earnings and revenues indicates an increase of 14.9% and 8.3%, respectively. HSIC has a trailing four-quarter average earnings surprise of 2.55%. Currently, the company carries a Zacks Rank #3.

Price and Consensus: HSIC


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McKesson Corporation (MCK) : Free Stock Analysis Report

Align Technology, Inc. (ALGN) : Free Stock Analysis Report

Henry Schein, Inc. (HSIC) : Free Stock Analysis Report

West Pharmaceutical Services, Inc. (WST) : Free Stock Analysis Report

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