UBS’ Bottom Quant Stocks In AI, IT, Healthcare & Others: 29 Stocks In All Sectors

15. Henry Schein, Inc. (NASDAQ:HSIC)

Number of Hedge Fund Investors In Q2 2024: 32

Sector: Healthcare

Henry Schein, Inc. (NASDAQ:HSIC) is a specialty medical distributor that caters primarily to the needs of dentists and the dental industry. The firm provides items used by dentists in their daily activities and in patients to improve their oral health. Since the dental market is not quite as defensive against consumer spending drops as compared to some sectors of the healthcare industry, Henry Schein, Inc. (NASDAQ:HSIC)’s shares have struggled. The stock is down 8.1% year to date, and the firm hasn’t been helped by a cyberattack either that forced it to take an additional hit to revenue and EPS during the second quarter. These have forced management to pivot to a cost-saving strategy to improve its margins through which Henry Schein, Inc. (NASDAQ:HSIC) aims to deliver $100 million in cost savings through restructuring by the end of next year. Consequently, the hypothesis depends on this strategy as Henry Schein, Inc. (NASDAQ:HSIC)’s broader market continues its tepid recovery.

Artisan Partners mentioned Henry Schein, Inc. (NASDAQ:HSIC) its Q2 2024 investor letter. Here is what the fund said:

“The biggest detractors from performance during the quarter were Harley-Davidson, Henry Schein, Inc. (NASDAQ:HSIC) and Expedia. Henry Schein declined 15% during the quarter due primarily to weak traffic trends in the overall dental market. In our view, the concerns around near-term traffic trends are misplaced. The long-term trends in the dental industry are favorable. Around 90% of US dentists are currently operating at full capacity, and 50% of the US population still isn’t regularly seeing a dentist. We see penetration opportunities and demographic tailwinds in the US and internationally. And while there will be puts and takes, the dental market should grow nicely over time.

Schein’s business is performing well. It seems to have recovered from the cyberattack in late 2023. Most importantly, it is making good progress on its strategy to shift its business mix toward its own branded products, which have higher growth and margins. This shift benefits Schein by improving its margins, increasing its value to customers and giving it more leverage with suppliers. This year it expects to grow earnings 10%–15%. As it transforms from a pure distributor of third-party products into a hybrid distributor/manufacturer, we believe it will have more control over its financial model and ability to drive attractive profit growth in a variety of market environments. We find this combination very attractive for a company trading at 11X–12X earnings.”