The medical industry is thriving as a result of rising demand and technological advancements, which are improving healthcare quality, efficiency, and accessibility for patients worldwide.
Given the industry’s growth prospects, investors could consider buying fundamentally sound medical stocks Tenet Healthcare Corporation (THC), Semler Scientific, Inc. (SMLR) and FONAR Corporation (FONR) for solid returns.
Before delving deeper into their fundamentals, let’s discuss what’s happening in the medical industry.
AI in healthcare is revolutionizing diagnosis, monitoring, and treatment, driving innovation and empowering healthcare professionals. The COVID-19 pandemic has further accelerated AI adoption, enabling effective use in diagnosis, detection, patient care, clinical trials, claims settlement, and virtual assistants.
According to Statista, AI in healthcare market is expected to be worth $188 billion by 2030, growing at a 37% CAGR from 2022 to 2030.
Moreover, the global digital health market is anticipated to grow at a CAGR of 13.1% until 2032. It is expanding rapidly due to rising demand for home diagnosis, IT infrastructure upgrades, and user-friendly digital health platforms, with telehealth, mHealth, and personalized healthcare experiences shaping market dynamics.
Investors’ interest in medical stocks is evident from Vanguard Health Care ETF’s (VHT) 6.6% returns over the past nine months.
Let’s take a look at the fundamentals of stocks.
Tenet Healthcare Corporation (THC)
THC operates as a diversified healthcare services company. The company operates through three segments, Hospital Operations; Ambulatory Care; and Conifer.
THC’s forward non-GAAP P/E of 13.08x is 32.3% lower than the industry average of 19.31x. Its forward Price/Sales of 0.38x is 91% lower than the industry average of 4.17x.
THC’s trailing-12-month EBIT margin of 13.50% is significantly higher than the industry average of 0.81%. Its trailing-12-month levered FCF margin of 4.47% is significantly higher than the industry average of 0.29%.
In the fiscal third quarter ended September 30, 2023, THC’s net operating revenues increased 5.5% year-over-year to $5.07 billion. Its adjusted EBITDA amounted to $854 million, increased marginally year-over-year, and EPS available to THC common shareholders increased marginally year-over-year to $1.44.
Analysts expect THC’s revenue to increase 7% year-over-year to $20.52 billion for the year ending December 2023. Its EPS is expected to come in at $5.84 for the same year. Shares of THC has gained 60.9% over the past year to close the last trading session at $76.32.
THC’s POWR Ratings reflect this promising outlook. The stock has an overall rating of B, equating to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
THC also has a B grade for Growth, Value and Sentiment. It is ranked #2 out of 11 stocks in the Medical - Hospitals industry. Click here for the additional POWR Ratings for Stability, Momentum and Quality for THC.
Semler Scientific, Inc. (SMLR)
SMLR provides technology solutions to improve healthcare providers’ clinical effectiveness and efficiency. The company’s products include QuantaFlo, a four-minute in-office blood flow test, and Insulin Insights, a software program that a healthcare provider uses to optimize outpatient insulin dosing.
SMLR’s forward non-GAAP P/E of 17.21x is 10.9% lower than the industry average of 19.31x. Its forward EV/EBIT of 10.12x is 42.7% lower than the industry average of 17.66x.
SMLR’s trailing-12-month EBIT margin of 35.79% is significantly higher than the industry average of 0.81%. Its trailing-12-month levered FCF margin of 18.77% is significantly higher than the industry average of 0.29%.
SMLR’s revenues for the third quarter ended September 30, 2023, increased 16.2% year-over-year to $16.32 million. Its income from operations rose 41% year-over-year to $6.30 million. The company’s net income increased 50% year-over-year to $5.51 million. Moreover, the company’s net income per share came in at $0.71, up 54.3% over the prior-year quarter.
The consensus revenue came in at $67.60 million for the fiscal year ending December 2023 represents a 19.3% increase year-over-year. Its EPS is expected to grow 48% year-over-year to $2.65 for the same year. It surpassed EPS estimates in all four trailing quarters. Shares of SMLR has gained 74.1% over the past six months to close the last trading session at $45.60.
SMLR’s positive outlook is reflected in its POWR Ratings. The stock has an overall rating of B, translating to a Buy in our proprietary rating system.
SMLR has an A grade for Sentiment and Quality and a B for Growth. It ranks first among the 47 stocks in the Medical - Diagnostics/Research industry. Click here to access additional SMLR ratings (Stability, Value and Momentum).
FONAR Corporation (FONR)
FONR together with its subsidiaries, engages in the research, development, production, and marketing of magnetic resonance imaging (MRI) scanners for the detection and diagnosis of human diseases in the United States.
FONR’s trailing-12-month EV/Sales of 1.06x is 72.6% lower than the industry average of 3.88x. Its trailing-12-month EV/EBIT of 6.16x is 73.1% lower than the industry average of 22.92x.
FONR’s trailing-12-month EBIT margin of 17.23% is significantly higher than the industry average of 0.81%. Its trailing-12-month levered FCF margin of 8.02% is significantly higher than the industry average of 0.29%.
FONR’s total revenues for the first quarter ended September 30, 2023, came in at $25.84 million, up 11.4% year-over-year. Additionally, its net income available to common stockholders climbed 100.5% year on year to $3.86 million. Its adjusted EPS was $0.59, up 103.4% over the previous quarter.
Shares of FONR has gained 28.1% over the past nine months to close the last trading session at $19.73.
FONR has an overall A rating, equating to a Strong Buy in our POWR Ratings system. It has a B grade for Growth, Value, Stability, Sentiment and Quality. It is ranked first among the 146 stocks in the Medical - Devices & Equipment industry.
Beyond what is stated above, we’ve also rated FONR for Momentum. Get all FONR ratings here.
What To Do Next?
43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.
THC shares were trading at $76.15 per share on Thursday morning, down $0.17 (-0.22%). Year-to-date, THC has gained 56.08%, versus a 26.58% rise in the benchmark S&P 500 index during the same period.
About the Author: Rashmi Kumari
Rashmi is passionate about capital markets, wealth management, and financial regulatory issues, which led her to pursue a career as an investment analyst. With a master's degree in commerce, she aspires to make complex financial matters understandable for individual investors and help them make appropriate investment decisions.
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