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华尔街日报1 Healthcare Stock on Our Watchlist and 2 We Ignore
Healthcare companies are pushing the status quo by innovating in areas like drug development and digital health. Those leading the charge have not only realized strong financial performance but also propelled the broader industry’s returns as healthcare stocks have gained 14.7% over the past six months while the S&P 500 was up 9.9%.
Regardless of these results, investors must exercise caution as many businesses in this space are subject to heavy regulation that can influence their earnings potential. Taking that into account, here is one healthcare stock poised to generate sustainable market-beating returns and two we’re passing on.
Two Healthcare Stocks to Sell:
Neogen (NEOG)
Market Cap: $1.52 billion
Founded in 1981 and operating at the intersection of food safety and animal health, Neogen (NASDAQ:NEOG) develops and manufactures diagnostic tests and related products to detect dangerous substances in food and pharmaceuticals for animal health.
Why Do We Avoid NEOG?
- Customers postponed purchases of its products and services this cycle as its revenue declined by 1.8% annually over the last two years
- Diminishing returns on capital from an already low starting point show that neither management’s prior nor current bets are going as planned
- EBITDA losses may force it to accept punitive lending terms or high-cost debt
Neogen’s stock price of $7.01 implies a valuation ratio of 20.2x forward P/E. Dive into our free research report to see why there are better opportunities than NEOG.
Artivion (AORT)
Market Cap: $2.11 billion
Formerly known as CryoLife until its 2022 rebranding, Artivion (NYSE:AORT) develops and manufactures medical devices and preserves human tissues used in cardiac and vascular surgical procedures for patients with aortic disease.
Why Are We Hesitant About AORT?
- Modest revenue base of $422.6 million gives it less fixed cost leverage and fewer distribution channels than larger companies
- Low free cash flow margin of 0.1% for the last five years gives it little breathing room, constraining its ability to self-fund growth or return capital to shareholders
- ROIC of 2.3% reflects management’s challenges in identifying attractive investment opportunities
Artivion is trading at $44.46 per share, or 60.1x forward P/E. If you’re considering AORT for your portfolio, see our FREE research report to learn more.
One Healthcare Stock to Watch:
Cigna (CI)
Market Cap: $74.56 billion
With roots dating back to 1792 and serving millions of customers across the globe, The Cigna Group (NYSE:CI) provides healthcare services through its Evernorth Health Services and Cigna Healthcare segments, offering pharmacy benefits, specialty care, and medical plans.
Why Do We Like CI?
- Impressive 18.8% annual revenue growth over the last two years indicates it’s winning market share this cycle
- Unparalleled scale of $267.8 billion in revenue enables it to spread administrative costs across a larger membership base
- Earnings growth was above the peer group average over the last five years as its EPS compounded at 8.1% annually
At $279.69 per share, Cigna trades at 9x forward P/E. Is now the right time to buy? Find out in our full research report, it’s free for active Edge members.
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