The Zacks Medical - Dental Supplies industry comprises designers, developers, manufacturers and marketers of dental consumables, dental laboratory products and dental specialty items. It also includes companies offering practice management and clinical software, patient education systems, and office forms and stationery.
These companies primarily have dentists, dental laboratories, institutions and healthcare professionals as customers.
Here are the three major industry themes:
- Digital Dentistry: Latest technologies help dentists carry out procedures with precision and efficiency, saving patients unnecessary trauma. The industry participants actively promote digital workflows for general dentistry as well as dental specialties. The most recent digital systems help provide faster dental treatments and better predictability of results. In keeping with the trend, Dentsply Sirona (XRAY) recently launched a single tooth replacement solution, Azento, in the United States to revolutionize digital-implant workflow in dental care. Also,dental 3D printing - the process of creating three dimensional solid dental models such as implants, surgical guides, braces, dentures, crowns and bridges - has been a rage.
- Increased Focus on Group Practices : Dentists are increasingly choosing to operate in groups, sharing a common office space. High debts related to dental school along with escalating operating costs have been driving this practice. The group system also makes way for easier approval of insurance coverage and fixing of insurance payment rates. This in turn is driving demand for dental equipment and consumables.
- Alternative Financing Options : According to a December 2016 research article published by Health Affairs, a large part of the population in the United States grapples with financial issues when it comes to dental care. As a solution to this pertinent problem, dental practitioners are coming up with financing options like customized payment plans and separate yearly rates. Practitioners are trying to make the most of the opportunities that sprung from the amended six-year extension of the CHIP funding program covering dental care for children until 2024. Companies in the dental industry are coming up with different packages for practitioners to allow them to cater to individual needs. For instance, Align Technology (ALGN) introduced a variety of Invisalign Clear Aligner Packages addressing a wide array of patient needs - from relapse and aesthetic treatment to clinically advanced, comprehensive treatment such as severe crowding and vertical and anterior-posterior discrepancies.
Zacks Industry Rank Indicates Bright Prospects
The Zacks Medical-Dental Supplies industry falls within the broader Zacks Medical sector. It carries a Zacks Industry Rank #61, which places it at the top 24% of more than 250 Zacks industries.
The group's Zacks Industry Rank, which is basically the average of the Zacks Rank of all the 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.
We will present a few stocks that have the potential to outperform the market based on a strong earnings outlook. But it's worth taking a look at the industry's shareholder returns and current valuation first.
Industry Underperforms S&P 500 and Sector
The industry has underperformed the Zacks S&P 500 composite and its own sector in the past year.
Stocks in this industry have collectively declined 15.5% against the Zacks Medical sector's gain of 2.7%. The industry has also underperformed the S&P 500's loss of 6.6%.
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 14.88X compared with the S&P 500's 15.82X and the sector's 16.15X.
Over the last five years, the industry has traded as high as 18.29X, as low as 14.34X, and at the median of 16.30X, as the charts below show.
Price-to-Earnings Forward 12 Months (F12M)
Price-to-Earnings Forward 12 Months (F12M)
According to a Global Market Insights report, extreme tobacco, sugar and alcohol intake raises the risk of chronic dental diseases. And these make the prospects better for the dental supplies industry. Further, increasing incidence of conditions like periodontitis, gingivitis, infections and oral thrush are expected to keep the industry going.
An aging population has also been a significant contributor. Higher incidence of calcium deficiency in older people leads to teeth loss. According to the National Institute of Dental and Craniofacial research, more than 24% of adults aged above 74 years have lost all teeth. People on medication for chronic and metabolic disorders also reach an edentulous state.
Here we present three stocks from the Medical - Dental Supplies industry with a Zacks Rank #3 (Hold) and have solid long-term growth potential. You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.
Align Technology : This company manufactures and markets a system of clear aligner therapy, intra-oral scanners and CAD/CAM (computer-aided design and computer-aided manufacturing) digital services used in dentistry, orthodontics, and dental records storage.
The stock has a Zacks Rank #3 and has declined 28.3% in a year's time. The medical dental supplies player has an estimated long-term earnings growth rate of 23.6%. The company has surpassed estimates in the last four quarters, the positive earnings surprise being 16.7%.
Price and Consensus: ALGN
Henry Schein (HSIC): Henry Schein entered the burgeoning market of orthodontic aligners with its proprietary SLX Clear Aligner System in May 2018. Management seems to be encouraged by the positive feedback for the product from the Key Opinion Leaders and other market participants. Henry Schein plans to increase the availability of the same through a global launch this year.
This Zacks Rank #3 stock has gained 7.2% in the past year. The company has an estimated long-term earnings growth rate of 7.3%. The company has surpassed estimates in three of the trailing four quarters, the positive earnings surprise being 1.8%.
Price and Consensus: HSIC
Patterson Companies (PDCO): Headquartered in St. Paul, MN, Patterson Companies is one of the leading distributors of dental products. Its Dental segment distributes consumable products (x-ray film, restorative materials, sterilization products and hand instruments); basic and advanced technology dental equipment; practice management and clinical software; patient education systems; and office forms and stationery in the United States and Canada.
Shares of the company have declined 38.9% in the past year. Patterson Companies has an estimated long-term earnings growth rate of 5.6%.
Price and Consensus: PDCO
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