Feature Industry Review

The Best Companies of the Medical Industry – June 2015

Best Companies of the Medical IndustryWhile ModernGraham supports the bottom-up approach to investing, many investors do utilize the top-down method, whereby an industry is selected before the company itself.  With that in mind, this article will take a brief look at the best companies of the medical industry, selecting the most promising investment opportunities within the industry, and giving a broad look into the industry as a whole.

Out of the more than 500 companies reviewed by ModernGraham, 26 were identified as being closely related to the medical industry.  Of those, only one is suitable for the Defensive Investor, fifteen are suitable for the Enterprising Investor, and the remaining nine are considered speculative at this time.  Excluding any extreme outliers, the average company was rated as being priced at 131.03% to its MG Value (estimated intrinsic value), with an average PEmg ratio of 26.54.  The industry as a whole, therefore would appear to be overvalued, particularly in comparison to the market (see Mr. Market’s Mental State).

The Elite

None of the companies reviewed were found to be undervalued.

The Good

The following companies have been rated as fairly valued and suitable for either the Defensive Investor or the Enterprising Investor:

C.R. Bard Inc. (BCR)

Bard_logoC.R. Bard Inc. should satisfy the Enterprising Investor, but not the Defensive Investor. The Defensive Investor is concerned with the high PEmg and PB ratios, while the Enterprising Investor has no initial concerns. Therefore, Enterprising Investors should feel very comfortable proceeding to the next part of the analysis, which is a determination of the company’s intrinsic value.

From a valuation side of things, the company has grown its EPSmg (normalized earnings) from $4.36 in 2011 to an estimated $6.74 for 2015. This level of demonstrated growth is in line with the market’s implied estimate for earnings growth of 8.36% over the next 7-10 years. The ModernGraham valuation model, therefore, returns an estimate of intrinsic value falling within a margin of safety relative to the current price, indicating C.R. Bard Inc. is fairly valued at the present time.  (See the full valuation)

Edwards Lifesciences Corp (EW)

edwardsEdwards Lifesciences qualifies for the Enterprising Investor but not the more conservative Defensive Investor.  The Defensive Investor is concerned with the lack of dividends, along with the high PEmg and PB ratios.  The Enterprising Investor is only concerned with the lack of dividends.  As a result, Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should explore other opportunities.  As for a valuation, the company appears to be fairly valued after growing its EPSmg (normalized earnings) from $1.75 in 2011 to an estimated $4.53 for 2015.  This level of demonstrated earnings growth supports the market’s implied estimate of 10.64% annual earnings growth over the next 7-10 years.  As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value within a margin of safety relative to the price.  (See the full valuation)

The Full List

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Clicking on the company name will take you to the company’s latest valuation.

Ticker Name with Link Investor Type Latest Valuation Date MG Value Recent Price Price as a percent of Value PEmg Ratio Div. Yield
BAX Baxter International Inc. E 6/9/2015 $53.51 $68.26 127.56% 17.82 3.05%
BCR C.R. Bard, Inc. E 5/8/2015 $167.43 $170.51 101.84% 25.30 0.56%
BDX Becton, Dickinson and Co. E 5/19/2015 $81.26 $139.60 171.79% 23.19 1.72%
BSX Boston Scientific Corporation S 9/7/2014 $0.00 $17.56 N/A N/A N/A
CAH Cardinal Health Inc S 1/20/2015 $35.17 $88.88 252.72% 28.86 1.74%
CERN Cerner Corporation E 6/4/2015 $58.73 $67.85 115.53% 44.35 N/A
COV Covidien plc E 10/16/2014 $71.18 $106.71 149.92% 27.15 1.35%
DGX Quest Diagnostics Inc D 4/16/2015 $59.93 $73.04 121.88% 17.81 2.08%
DVA DaVita HealthCare Partners Inc S 11/14/2014 $77.83 $81.40 104.59% 27.32 N/A
ESRX Express Scripts Holding Company S 7/25/2014 $102.23 $87.41 85.50% 28.57 N/A
EW Edwards Lifesciences Corp E 6/10/2015 $174.33 $133.58 76.62% 29.49 N/A
ISRG Intuitive Surgical, Inc. E 6/4/2015 $417.21 $495.66 118.80% 33.95 N/A
LH Laboratory Corp. of America Holdings S 5/13/2015 $117.25 $119.88 102.24% 18.44 N/A
MDT Medtronic, Inc. E 3/29/2015 $65.07 $75.52 116.06% 22.34 1.62%
PDCO Patterson Companies, Inc. E 3/14/2015 $27.37 $48.39 176.80% 23.60 1.82%
PKI PerkinElmer, Inc. S 10/17/2014 $8.91 $52.06 584.29% 33.37 0.54%
PMD Psychemedics Corp. E 5/8/2015 $6.60 $14.73 223.18% 24.97 4.07%
STJ St. Jude Medical, Inc. S 2/17/2015 $56.49 $74.35 131.62% 26.46 1.56%
SYK Stryker Corporation E 3/25/2015 $12.95 $95.67 738.76% 38.27 1.44%
THC Tenet Healthcare Corp S 5/18/2015 $0.00 $51.82 N/A 90.91 N/A
TMO Thermo Fisher Scientific Inc. S 8/4/2014 $170.58 $130.02 76.22% 29.35 0.46%
UNH UnitedHealth Group Inc. S 11/15/2014 $136.02 $117.65 86.49% 22.24 1.70%
VAR Varian Medical Systems, Inc. E 5/10/2015 $76.69 $85.78 111.85% 22.11 N/A
WAT Waters Corporation E 3/14/2015 $115.29 $133.94 116.18% 26.73 N/A
XRAY DENTSPLY International Inc. E 5/19/2015 $38.63 $52.11 134.90% 22.86 0.56%
ZMH Zimmer Holdings, Inc. E 3/16/2015 $62.18 $112.20 180.44% 22.39 0.78%

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To view the MG Value and PEmg information,  you must be logged in as a premium member.  Clicking on the company name will take you to the company’s latest valuation.

Ticker Name with Link Investor Type Latest Valuation Date MG Value Recent Price Price as a percent of Value PEmg Ratio Div. Yield
BAX Baxter International Inc. E 6/9/2015 $68.26 3.05%
BCR C.R. Bard, Inc. E 5/8/2015 $170.51 0.56%
BDX Becton, Dickinson and Co. E 5/19/2015 $139.60 1.72%
BSX Boston Scientific Corporation S 9/7/2014 $17.56 N/A
CAH Cardinal Health Inc S 1/20/2015 $88.88 1.74%
CERN Cerner Corporation E 6/4/2015 $67.85 N/A
COV Covidien plc E 10/16/2014 $106.71 1.35%
DGX Quest Diagnostics Inc D 4/16/2015 $73.04 2.08%
DVA DaVita HealthCare Partners Inc S 11/14/2014 $81.40 N/A
ESRX Express Scripts Holding Company S 7/25/2014 $87.41 N/A
EW Edwards Lifesciences Corp E 6/10/2015 $133.58 N/A
ISRG Intuitive Surgical, Inc. E 6/4/2015 $495.66 N/A
LH Laboratory Corp. of America Holdings S 5/13/2015 $119.88 N/A
MDT Medtronic, Inc. E 3/29/2015 $75.52 1.62%
PDCO Patterson Companies, Inc. E 3/14/2015 $48.39 1.82%
PKI PerkinElmer, Inc. S 10/17/2014 $52.06 0.54%
PMD Psychemedics Corp. E 5/8/2015 $14.73 4.07%
STJ St. Jude Medical, Inc. S 2/17/2015 $74.35 1.56%
SYK Stryker Corporation E 3/25/2015 $95.67 1.44%
THC Tenet Healthcare Corp S 5/18/2015 $51.82 N/A
TMO Thermo Fisher Scientific Inc. S 8/4/2014 $130.02 0.46%
UNH UnitedHealth Group Inc. S 11/15/2014 $117.65 1.70%
VAR Varian Medical Systems, Inc. E 5/10/2015 $85.78 N/A
WAT Waters Corporation E 3/14/2015 $133.94 N/A
XRAY DENTSPLY International Inc. E 5/19/2015 $52.11 0.56%
ZMH Zimmer Holdings, Inc. E 3/16/2015 $112.20 0.78%

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Disclaimer:
 The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  Logo taken from Wikipedia for the sole purpose of identifying the company; this article is not affiliated with the company in any manner.

 

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