Yahoo Finance 3 Medical Services Stocks to Buy Amid Industry Challenges
Over the past two years, with digital healthcare treatment becoming indispensable, the medical services industry has been witnessing significant demand for telemedicine-focused online medical and AI-powered technology services. Companies in the remote healthcare space have seen their stocks rally amid economic volatility. Embecta Corp. EMBC, InnovAge INNV and OncoCyte OCX are a few such stocks. During the pandemic, observing the surging demand for distant treatment options, many healthcare companies that were not tech-based traditionally transformed themselves into technology-based ones to survive in the market.
Meanwhile, the pandemic, although at its weakest now, has dealt a blow to the manual workforce in healthcare infrastructure. Per a February 2023 report by Research and Markets, the WHO estimates that by 2030, there will be a shortage of 10 million health workers in low- and lower-middle-income countries.
Industry Description
The Zacks Medical Services industry comprises third-party service providers and caregivers appointed by core healthcare companies for economies of scale. The industry includes pharmacy benefit managers, contract research organizations, wireless MedTech companies, third-party testing labs, surgical facility providers, and healthcare workforce solutions providers among others. Over the years, this industry has strategically moved from volume- to value-based care. This changing pattern of care calls for advanced facilities, thus increasing the need to appoint specialized external service providers. With the growing importance of effective healthcare management, the medical service industry has become an integral part of the modern healthcare system.
3 Trends Shaping the Future of the Medical Services Industry
Staffing Shortage: Although over the past several months, the severity of the COVID-19 pandemic has significantly declined globally, the trauma of the past two years’ uncertainty and commotion within this field has forced frontline workers like doctors and medical staff to leave the field. Going by a National Institute of Health (NIH) report of 2022, the U.S. Bureau of Labor Statistics projects that more than 275,000 additional nurses are needed from 2020 to 2030. Going by the Research and Markets report, the gap between healthcare demand and supply of nurses and doctors is widening and more evident in developing countries due to the limited capacity and number of medical schools. Accordingly, employment opportunities for nurses are projected to grow at a faster rate than all other occupations.
Digital Revolution Amid the Pandemic: With an increase in the adoption of digital platforms within the medical device space, remote monitoring, robotic surgeries, big-data analytics, 3D printing and electronic health records are gaining prominence in the United States. A 2020 Digital Health Market report suggests that this market, valued at $106 billion in 2019, will witness a 28.5% CAGR through 2026. Other reports suggest that the companies that adopted artificial intelligence technologies witnessed a 50% reduction in treatment costs and experienced more than 50% improvement in patient outcomes. Amid the pandemic, this line of healthcare is becoming a major choice for contactless healthcare services.
Nursing Care Market Boom: With rising cognizance about the benefits of specialized medical caregiving, the need for healthcare workforce/staffing service providers has increased significantly. For example, the demand for nurses has increased manifold, driven by the rising incidence of chronic disorders in the United States, and is expected to be high in the days ahead. Going by a Research and Markets report, the global healthcare staffing market size is expected to reach $62.8 billion by 2030, registering a CAGR of 6.93% from 2023 to 2030.
Zacks Industry Rank Indicates Dull Prospects
The Zacks Medical Services industry falls within the broader Zacks Medical sector. It carries a Zacks Industry Rank #155, which places it in the bottom 38% 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 dull 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 Sector and S&P 500
The Medical Services Industry has underperformed its own sector as well as the S&P 500 over the past year. The stocks in this industry have collectively lost 22.1% during the said time frame compared with the S&P 500 composite’s fall of 7.9%. The Medical sector has declined 13.7% in the same time frame.
One Year Price Performance
Industry's Current Valuation
On the basis of forward 12-month price-to-earnings (P/E), which is commonly used for valuing medical stocks, the industry is currently trading at 16.12X compared with the S&P 500’s 17.96X and the sector’s 21.86X.
Over the last five years, the industry has traded as high as 22.23X, as low as 11.65X, and at the median of 15.10X, as the charts below show.
Price-to-Earnings Forward Twelve Months (F12M)
Price-to-Earnings Forward Twelve Months (F12M)
3 Stocks to Buy Right Now
Below are three stocks within the Medical Services industry that have been witnessing positive earnings estimate revisions and carry a Zacks Rank #2 (Buy) at present.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Embecta: Headquartered in Parsippany, NJ, Embecta focuses on various solutions to enhance the health and well-being of people living with diabetes. Its products include pen needles, syringes, and safety devices, as well as digital applications to assist people in managing diabetes. The company primarily sells its products to wholesalers and distributors in the United States and internationally. Embecta was founded in 1924
Embecta’s 2024 earnings growth rate is pegged at 10.1%. It delivered an earnings surprise of 38.9%, on average, in the trailing four quarters.
Price and Consensus: EMBC
InnovAge: Headquartered in Denver, CO, InnovAge provides medical and ancillary services for seniors in need of care and support to live independently in their homes and communities. The company offers in-home care services consisting of skilled, unskilled, and personal care; in-center services, such as primary care, physical therapy, occupational therapy, speech therapy, dental services, mental health and psychiatric services, meals, and activities; transportation to the PACE center and third-party medical appointments; and care management.
InnovAge’s 2024 expected earnings growth rate is pegged at 69.2%. The Zacks Consensus Estimate for InnovAge’s 2024 revenues indicates a year-over-year rise of 7.6%.
Price and Consensus: INNV
OncoCyte: OncoCyte is a molecular diagnostics company that develops and commercializes proprietary laboratory-developed tests for the detection of cancer in the United States and internationally. The company offers DetermaRx, a molecular test for early-stage adenocarcinoma of the lung; and DetermaIO, a proprietary gene expression assay. It also provides biomarker discovery testing, assay design and development, and clinical trial support services, as well as various biomarker tests for pharmaceutical companies.
OncoCyte’s 2023 expected revenue growth rate is pegged at 27.1%. The company’s shares have risen 15.3% year to date.
Price and Consensus: OCX
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Embecta Corp. (EMBC) : Free Stock Analysis Report
OncoCyte Corporation (OCX) : Free Stock Analysis Report
InnovAge Holding Corp. (INNV) : Free Stock Analysis Report
