The medical industry could be a solid defensive play in an uncertain economy as its profit margins remain stable irrespective of the economic cycle. The medical sector is well-positioned for growth as spending on healthcare is rising due to an aging population and the rise in chronic diseases.
Amid this backdrop, it could be wise to buy fundamentally strong medical stocks Medifast, Inc. (MED) and Zynex, Inc. (ZYXI). On the other hand, Herbalife Ltd. (HLF) could be worth adding to your watchlist. MED and ZYXI are rated B (Buy), while HLF is rated C (Neutral) in our proprietary rating system, POWR Ratings.
Before diving deeper into the fundamentals of these stocks, let’s discuss why the medical industry is well-positioned for growth.
The medical-consumer goods industry’s growth is driven by the rising demand for medical products and services due to an aging demographic, a rise in chronic diseases, a growing desire to live a healthy life, and the proliferation of wellness-related products.
The medical industry is also considered safe to invest in as healthcare spending remains resilient during economic downturns. The sector will benefit from the rise in healthcare expenditure. U.S. healthcare spending is expected to grow at a rate of 4.3% to reach $4.4 trillion by 2031.
During the 2022 to 2031 period, the National Health Expenditure (NHE) average growth of 5.4% is expected to beat the average GDP growth of 4.6%. This is expected to increase the health spending share of GDP from 18.3% in 2021 to 19.6% in 2031.
Additionally, the growing demand for medical services due to increased patients with long-term conditions and the rise of internet applications providing medical home services are driving the medical industry’s growth. Advanced healthcare research has also increased reliance on machines, reducing the need for extensive staff.
The global portable medical devices market is expected to grow at a CAGR of 10.7%, generating revenues of $163.84 billion by 2033, up from $59.28 billion in 2023.
Let’s take a closer look at their fundamentals.
Stocks to Buy:
Medifast, Inc. (MED)
MED manufactures and distributes weight loss, weight management, healthy living products, and other consumable health and nutritional products in the United States and the Asia-Pacific. The company offers bars, bites, pretzels, drinks, hearty choices, oatmeal, pancakes, pudding, soft serves, shakes, etc., under the OPTAVIA, Optimal Healthy by Take Shape for Life brands.
On June 1, 2023, MED, announced it is enhancing its Fuel for the Future program to optimize spending and raise margins. They aim to achieve 15% annualized revenue growth and a 15% sustainable operating margin by 2025. They will exit operations in Hong Kong and Singapore to focus on tech investments and expand market reach.
In terms of the trailing-12-month EBITDA margin, MED’s 12.73% is 28.3% higher than the 9.92% industry average. Likewise, the stock’s 4.12x trailing-12-month asset turnover ratio is 356.1% higher than the 0.90x industry average. Moreover, the stock’s 70.89% trailing-12-month gross profit margin is 126.4% higher than the 31.32% industry average.
MED’s revenue for the first quarter ended March 31, 2023, came in at $348.98 million. Its gross profit came in at $246.39 million. Likewise, its net income came in at $39.97 million. Additionally, the company’s EPS came in at $3.67, representing an increase of 2.2% year-over-year.
Its current assets came in at $230.32 million, compared to current assets of $222.78 million for the fiscal year ended December 31, 2022. Also, its total current liabilities came in at $131.74 million, compared to current liabilities of $140.89 million for the fiscal year ended December 31, 2022.
Street expects MED’s EPS and revenues for fiscal 2024 to increase 11.7% and 4.6% year-over-year to $8.88 and $1.21 billion, respectively. It surpassed the Street EPS estimates in each of the trailing four quarters. Over the past month, the stock has gained 13.6% to close the last trading session at $91.40.
MED’s POWR Ratings reflect strong prospects. It has an overall rating of B, which translates to a Buy in our proprietary system. The POWR ratings assess stocks by 118 different factors, each with its own weighting.
It is ranked #5 out of 8 stocks in the A-rated Medical - Consumer Goods industry. It has an A grade for Value and Quality. Click here to see MED’s rating for Growth, Momentum, Stability, and Sentiment.
Zynex, Inc. (ZYXI)
ZYXI designs, manufactures, and markets medical devices to treat chronic and acute pain; and activate and exercise muscles for rehabilitative purposes with electrical stimulation.
On July 10, 2023, ZYXI announced that it had engaged MZ Group as their international investor relations specialists to lead comprehensive strategic investor relations and financial communications programs in key markets.
MZ Group will work closely with ZYXI’s management to build upon their investor relations and shareholder communication program designed to increase the company’s visibility throughout the investment community.
Thomas Sandgaard, President and CEO at ZYXI, said, "Zynex is focused on delivering shareholder value by continuing the profitable growth in its of pain management division and developing and selling the next generation of patient monitoring equipment. We believe that having MZ as a partner will assist in this goal by broadening our reach within the investment community and achieving a fair valuation.”
In terms of the trailing-12-month EBITDA margin, ZYXI’s 14.51% is 303.1% higher than the 3.60% industry average. Likewise, its 1.39x trailing-12-month asset turnover ratio is 293.7% higher than the 0.35x industry average. Moreover, its 79.92% trailing-12-month gross profit margin is 43.6% higher than the 55.64% industry average.
ZYXI’s total net revenues for the first quarter ended March 31, 2023, increased 35.7% year-over-year to $42.17 million. Its net income rose 13.9% year-over-year to $1.57 million. Also, its EPS increased 33.3% year-over-year to $0.04.
Analysts expect ZYXI’s revenue for the quarter ended June 30, 2023, to increase 21.3% year-over-year to $44.60 million. Its EPS for the quarter ending December 31, 2023, is expected to increase 18.3% year-over-year to $0.24. It surpassed the Street EPS estimates in each of the trailing four quarters.
Over the past year, the stock has gained 26.5% to close the last trading session at $9.31.
ZYXI’s positive outlook is reflected in its POWR Ratings. The stock has an overall rating of B, equating to a Buy in our proprietary rating system.
It has an A grade for Value and Quality. It is ranked #4 in the same industry. To see ZYXI’s ratings for Growth, Momentum, Stability, and Sentiment, click here.
Stock to Watch:
Herbalife Ltd. (HLF)
HLF provides health and wellness products in North America, Mexico, South and Central America, Europe, the Middle East, Africa, China, and the rest of Asia Pacific. The company provides products in the areas of weight management; targeted nutrition; energy, sports, and fitness; outer nutrition; and literature and promotion items.
On April 13, 2023, HLF launched 106 new products in the first quarter of 2023 across its 95 global markets. This move demonstrates the company's dedication to expanding its high-quality product offerings to meet diverse consumer needs in the wellness sector and promote healthy lifestyles worldwide.
In terms of the trailing-12-month EBITDA margin, HLF’s 11.76% is 18.5% higher than the 9.92% industry average. Likewise, its 1.86x trailing-12-month asset turnover ratio is 105.8% higher than the 0.90x industry average. Its 44.59% trailing-12-month gross profit margin is 42.4% higher than the 31.32% industry average.
On the other hand, its 2.84% trailing-12-month Capex/Sales is 10.1% lower than the 3.16% industry average. Its 1.80% trailing-12-month levered FCF margin is 39.5% lower than the 2.98% industry average.
For the fiscal first quarter ended March 31, 2023, HLF’s worldwide net sales declined 6.3% year-over-year to $1.25 billion. Its adjusted net income fell 46.6% year-over-year to $53.90 million. The company’s adjusted EBITDA decreased 30.5% year-over-year to $128.90 million. In addition, its adjusted EPS came in at $0.54, representing a decline of 45.5% year-over-year.
HLF’s EPS and revenue for the quarter ended June 30, 2023, are expected to decline 27.8% and 8.3% year-over-year to $0.69 and $1.28 billion, respectively. It surpassed the consensus EPS estimates in three of the trailing four quarters. Over the past month, the stock has gained 8.6% to close the last trading session at $13.25.
HLF’s POWR Ratings are consistent with this uncertain outlook. It has an overall rating of C, which translates to Neutral in our proprietary rating system.
It has an A grade for Value and Quality and a C for Stability. Within the Medical - Consumer Goods industry, it is ranked #6. To see HLF’s Growth, Momentum, and Sentiment rating, click here.
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MED shares were trading at $93.33 per share on Monday afternoon, up $1.93 (+2.11%). Year-to-date, MED has declined -16.13%, versus a 18.59% rise in the benchmark S&P 500 index during the same period.
About the Author: Dipanjan Banchur
Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets.
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