NEW YORK (
) -- An analysis of highly-rated large and mid-cap health care stocks by
highlights a group of companies with increasing revenue and plenty of growth potential for investors.
To come up with our list of 10 health care stocks, we began with companies rated B (Buy) or above by
with market capitalizations of at least $1 billion in the following industry categories: Health Care Providers & Services, Health Care Technology and Health Care Equipment & Supplies.
10. Haemonetics Corp.
of Braintree, Mass. closed at $55.05 Thursday, for a 52-week total return of 3%. It is a medical device company which develops and manufactures automated blood component collection devices and surgical blood salvage devices. Its customers are blood and plasma collectors, hospitals and hospital service providers.
Haemonetics Corp. reported net income for its first fiscal quarter ended July 3 of $17.9 million, or 70 cents a share, compared to $18.1 million, or 69 cents a share, a year earlier. Net revenue for the first fiscal quarter was $163 million, increasing from $154.1 million a year earlier. The company completed a $50 million share buyback during the first fiscal quarter.
Excluding "transformation costs" as the company integrates Global Med Technologies, which it acquired in April, operating income for the first fiscal quarter would have been $19 million. For fiscal 2011 which will end in early April 2011, the company's guidance is for adjusted earnings per share between $3.15 and $3.25, with revenue growth of between 9% and 12% and growth in adjusted operating income of 11% to 14%.
The company will release its earnings results for its second fiscal quarter on November 1.
The company has a strong balance sheet, with almost no long-term debt and a quick ratio of 1.94, showing a strong ability to cover short-term liabilities.
The shares trade for 24.5 times earnings.
Out of 11 analysts covering Haemonetics Corp., nine rate the shares a buy, while the other two recommend investors hold the shares.
9. Emergency Medical Services
Emergency Medical Services
( EMS) of Greenwood Village, Colo., closed at $53.34 Thursday, returning 11% over the previous year. The company provides emergency and non-emergency ambulance and other services under its American Medical Response brand and outsourced emergency medical staffing and management services under the EmCare brand.
In July, the company acquired Affilion, an emergency physician staffing company based in Tempe, Ariz., and Fredericksburg Anesthesia Consultants, which provides anesthesia services in south Texas.
For the second quarter, EMS reported net income of $24 million, or 54 cents a share, declining from $29 million, or 67 cents a share, a year earlier, as the company booked a one-time loss of $19.1 million from the prepayment of a secured loan and redeemed its 10% senior subordinated notes.
Net revenue for the second quarter was $708.8 million, increasing $637.3 million a year earlier, with most of the growth coming from new contracts added in the EmCare segment.
The company increased its guidance for 2010, saying adjusted earnings interest, taxes, depreciation, and amortization (EBITDA) for the year would range between $318 million and $325 million and between $2.90 and $3.00 a share.
The company will release third-quarter results on November 2.
The company's ratio of debt to capital is 0.36. It's quick ratio is 2.31.
Shares trade for 20.1 times earnings.
All 11 analysts covering Emergency Medical Services rate the shares a buy.
8. Catalyst Health Solutions
Catalyst Health Solutions
( CHSI) is a pharmacy benefit management company headquartered in Rockville, Md. The shares closed at $38.55 Thursday, returning 24% for one year.
In September the company acquired
Independence Blue Cross
' pharmacy benefit management subsidiaries for $225 million in cash. Catalyst had previously announced that it would manage IBC's pharmacy benefits under a 10-year agreement. IBC is a healthcare provider in southeast Pennsylvania.
Catalyst Health Solutions reported second-quarter net income of $19.5 million, or 44 cents a share, increasing from $16.2 million, or 37 cents a share, during the second quarter of 2009. Second-quarter revenue was $890.1 million, increasing 24% year-over-year, as prescription volume increased and the company also benefitted from "price inflation on brand drugs."
With adjustments made for "the difference in days supply between mail-order and retail," the company filled 17.8 million prescriptions in the second quarter, increasing 20% from a year earlier.
Catalyst will announce its third-quarter results on Nov. 4.
Catalyst Health Solutions had no long-term debt as of June 30. The company's quick ratio is 2.31.
The shares trade for 23.7 times earnings.
Out of 17 analysts covering Catalyst Health Solutions, 14 have buy ratings, two recommend holding the shares and one recommends investors sell the shares.
7. Express Scripts
of St. Louis, Mo. closed at $48.27 Thursday, for a one year total return of 20%. The company provides pharmacy benefit management services and also distributes drugs and medical supplies to health care providers.
Express Scripts reported second-quarter net income of $289.9 million, or 53 cents a share, increasing from $192.3 million, or 37 cents a share, a year earlier. Revenue more than doubled, to $11.3 billion in the second quarter, from $5.5 billion in the second quarter of 2009, as the company integrated its NextRx business, acquired from
for $4.7 billion in December 2009.
The company will announce its third-quarter results Wednesday after the market close.
The company's ratio of debt to capital is 0.49. It's quick ratio is a relatively low 0.68.
The shares trade for 27 times earnings.
Out of 30 analysts covering Express Scripts, 27 rate the share a buy, while the other three recommend investors hold the shares.
6. American Medical Systems Holdings
American Medical Systems Holdings
( AMMD) of Minnetonka, Minn. provides medical devices for the treatment of pelvic conditions. Shares closed at $20.63 Thursday, returning 28% over the previous year.
Based on the median 12-month price target of $26 among analysts polled by Thomson Reuters, the shares have 21% upside potential.
Net income for the second quarter was $20.6 million, or 26 cents a share, increasing from $16.9 million, or 23 cents a share, for the second quarter of 2009. Second quarter net sales were $136.4 million, increasing 8% from a year earlier.
Late in the second quarter, the company rolled out its GreenLight Laser Therapy System, for the treatment of Benign Prostatic Hyperplasia (BPH), a non cancerous enlargement of the prostate. The new treatment system has fewer side effects than traditional surgery and the company announced in early October the sale of eight units in Australia.
The company will announce its third-quarter results on November 3.
The company's debt-to-capital ratio is 0.32. The quick ratio is a high 2.57.
The shares trade for 17 times earnings, which is low for the company's peer group.
Out of 10 analysts covering American Medical Systems Holdings, seven rate the shares a buy while three recommend investors hold the shares.
5. Patterson Companies
of St. Paul, Minn. closed at $27.73 Thursday, for a total return of 4% over the previous year. The company distributes dental, veterinary and rehabilitation supplies.
Based on the $35 consensus 12-month price target among analysts polled by Thomson Reuters, the shares have 21% upside potential.
Patterson's fiscal year ends on April 30. During the second fiscal quarter through September 24, Patterson had repurchased about 948 thousand shares for approximately $25.7 million, and was authorized to buy back about 4.96 million additional shares under its amended stock repurchase plan.
For the first fiscal quarter ended July 31, Patterson Companies reported net income of $53.9 million, or 45 cents a share, increasing from $45.1 million, or 38 cents a share, a year earlier. Net sales were $849.8 million, up 8% year-over-year, although the first fiscal quarter contained one additional week over the previous year and fiscal 2011 will have 53 weeks.
Patterson's largest segment is dental supply, and sales for the unit increased 6% year-over-year to $542.7 million for the quarter. Commenting on the "sluggish economic conditions," CEO Scott Anderson said the company was "encouraged by the strong sales growth of basic dental equipment, reflecting our ability to capture a significant share of the equipment business that has been deferred for the past two years."
Sales for Patterson Medical -- the rehabilitation supply segment -- increased 17% from a year earlier to $127.5 million during the fiscal first quarter.
The company will announce its results for the second fiscal quarter on November 15.
The company's ratio of debt to capital is 0.26 and its quick ratio is a strong 2.29.
Patterson's shares trade for 15 times earnings.
Out of 13 analysts covering Patterson Companies, nine recommend buying the shares while the other four recommend investors hold the shares.
4. McKesson Corp.
of San Francisco distributes drugs, medical-surgical supplies and equipment, and health and beauty care products in North America through its Distribution Solutions segment and offers clinical, patient care, financial, supply chain, and strategic management software through its Technology Solutions segment.
The shares closed at $61.31 Thursday, returning 2% over the previous year, and had 21% upside potential based on the consensus price target of $77.50 among analysts polled by Thomson Reuters.
McKesson is in the midst of an "accelerated share buyback agreement" to repurchase $1 billion worth of common shares, $531 million remaining to be spent on repurchases as of July 31.
For the fiscal first quarter ended June 30, McKesson reported net income of $298 million, or $1.10 a share, up slightly from $288 million, or $1.06 a share, a year earlier. Total revenue increased 3% year-over-year to $27.5 billion. The company estimated it would earn between $4.72 and $4.92 a share from continuing operations for the fiscal year ending March 31, 2011.
On October 19, Connecticut Attorney General Richard Blumenthal announced a deal under which McKesson would pay the state $15 million to settle charges of "artificially inflating drug costs incurred by consumers and state-funded health care programs." In a filing with the
Securities and Exchange Commission
the same day, McKesson said it had agreed to pay $26 million to settle the charges, with the money being "shared among the State of Connecticut and the Federal government." The company said the settlement would result in a pre-tax charge of $24 million for its fiscal second quarter ending on September 30.
McKesson will announce its third-quarter results Tuesday after the market close.
McKesson's ratio of debt to capital is 0.25 and its quick ratio is 0.66.
The shares trade for 13 times earnings.
Out of 20 analysts covering the McKesson, 15 have buy ratings and five recommend investors hold the shares. Oppenheimer analyst Charles Rhyee has an "outperform" rating on the shares with a price target of $78, saying his firm sees "potential upside to estimates from additional share repurchase, adding that a "greater than expected benefit from upcoming generic launches could provide further upside to estimates."
3. Sirona Dental Systems
Sirona Dental Systems
of Long Island City, N.Y. manufactures and sells dental supplies in four segments: CAD/CAM Systems (dental restorations), Imaging Systems, Treatment Centers and Instruments.
Shares closed at $36.09 Thursday, for a total return of 22% over the previous year. Upside potential is 22% based on the median 12-month target price of $46 among analysts polled by Thomson Reuters.
Net income attributable to common shareholders for the fiscal third quarter ended June 30 was $16.6 million, or 29 cents a share, down from $20.5 million a year earlier, however, operating income excluding amortization increased 6% year-over-year to $45.3 million.
Revenue for the third fiscal quarter was $182.4 million, up 1% year-over-year. The Imaging Systems segment was strongest, with revenue increasing 17% year-over-year, while CAD/CAM revenue was flat, Instruments declined 5% and Treatment Centers revenue declined 15%. CEO Jost Fischer said the Imaging Systems revenue improvement was driven by "considerable demand for our Galileos 3D imaging system."
Sirona also increased its operating income guidance for 2010 to a range of $186 million to $190 million.
The company is expected to announce results for the fourth fiscal quarter on November 15.
Sirona's ratio of debt to capital is 0.32 and its quick ratio is 2.10.
The shares sell for 22.1 times earnings.
Out of 13 analysts covering Sirona Dental Systems, 11 rate the shares a buy and two recommend investors sell the shares. Among the believers is Scott Green, an analyst with Bank of America Merrill Lynch, who has a price target of $48, saying that comments by
that "highlighted strong demand for 3D technologies and digital x-ray sensors, particularly in the U.S. and Asia," was "good news for SIRO since GALILEOS is the most popular 3D Imaging unit on the market."
2. Intuitive Surgical
of Sunnyvale, Calif. manufactures and sells surgical systems for urologic, gynecologic, cardiothoracic, general, and head and neck surgeries, under the da Vinci Surgical System brand.
The shares closed at $256.84 Thursday, up 2% over the previous year. The shares have 30% upside potential based on the $365 consensus price target among analysts polled by Thomson Reuters.
In July, the company authorized another $150 in stock repurchases, which combined with the remaining $150 million from an earlier repurchase plan made up $300 million authorized for share repurchases.
The company reported third-quarter net income of $86.6 million, or $2.14 a share, up from $64.5 million, or $1.64 a share, during the third quarter of 2009. Total revenue increased 23% year-over-year to $344.4 million, driven by "driven by continued robotic procedure adoption and higher da Vinci Surgical System sales."
Intuitive Surgical has a very strong balance sheet, with no long-term debt and a quick ratio of 4.45.
The shares trade for 30.6 times earnings.
Out of 12 analysts covering Intuitive Surgical, five have buy ratings and the other seven recommend investors hold the shares. Madison Williams analyst Spencer Nam has a buy rating on the shares with a target of $375, saying "new product launches (stapler, imaging system, etc.) should support systems placement and procedure volume growth," and adding that his firm "would be aggressive buyers of ISRG into any weakness on the heels of Q3 results."
1. Thoratec Corp.
of Pleasanton, Calif. manufacturers and sells devices for circulatory support. The Cardiovascular division provides devices for mechanical circulatory support, and the International Technidyne Corporation (ITC) segment provides point-of care diagnostic test systems and incision products for blood samples.
The shares closed at $34.20 Thursday, up 21% over the previous year. Upside potential was 30% based on the $49 consensus price target among analysts polled by Thomson Reuters.
In July, the company announced the termination of its agreement to sell ITC to sell Danaher Corp., by mutual agreement, as the parties "were unable to reach agreement as to whether closing conditions had been met," in part because "the ProTime InRhythm launch in the U.S. has been delayed because the FDA did not clear the product's initial 510(k) submission."
Thoratec said ITC will be accounted for as a discontinued operation and that its board of directors expects "a sale of ITC will occur in the next twelve months."
Net income for the second fiscal quarter ended July 3 was $16 million, or 28 cents a share, increasing from $1.8 million, or 3 cents a share, a year earlier. Product sales increased 37% year-over-year to $95.1 million, as two clinical support programs - HeartMate II LVAS (Left Ventricular Assist System) for Bridge-to-Transplantation and Destination Therapy - were implemented internationally. The company added 21 HaeartMate II centers during the first half of 2010 in North America, Europe and Japan.
The company will announce third quarter earnings on Thursday.
Thoratec's ratio of debt to capital is 0.19 and its quick ratio is 2.17.
The shares trade for 38.9 times earnings.
Out of 18 analysts covering the shares, 14 rate Thoratec a buy, while the other four analysts recommend investors sell the shares.
Written by Philip van Doorn in Jupiter, Fla.
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Philip W. van Doorn is a member of TheStreet's banking and finance team, commenting on industry and regulatory trends. He previously served as the senior analyst for TheStreet.com Ratings, responsible for assigning financial strength ratings to banks and savings and loan institutions. Mr. van Doorn previously served as a loan operations officer at Riverside National Bank in Fort Pierce, Fla., and as a credit analyst at the Federal Home Loan Bank of New York, where he monitored banks in New York, New Jersey and Puerto Rico. Mr. van Doorn has additional experience in the mutual fund and computer software industries. He holds a bachelor of science in business administration from Long Island University.