Henry Schein Inc Valuation – February 2016 Update $HSIC

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Most Undervalued Companies for the Defensive Investor – November 2015.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how Henry Schein Inc (HSIC) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Henry Schein, Inc. provides health care products and services to office-based dental animal health and medical practitioners. The Company operates its business through two segments: health care distribution and technology and value-added services. The health care distribution segment distributes consumable products, laboratory products, equipment repair services, branded and generic pharmaceuticals, vaccines, surgical products, diagnostic tests, infection-control products and vitamins, among others. The Company’s global technology and value-added services segment provides software, technology and other value-added services to health care practitioners. Its offerings include practice management software systems for dental and medical practitioners and animal health clinics. Its value-added practice solutions include financial services on a non-recourse basis, e-services, practice technology, network and hardware services, as well as continuing education services for practitioners.


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Downloadable PDF version of this valuation:

ModernGraham Valuation of HSIC – February 2016

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $12,553,345,359 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.74 Fail
3. Earnings Stability Positive EPS for 10 years prior Pass
4. Dividend Record Dividend Payments for 10 years prior Fail
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end 137.00% Pass
6. Moderate PEmg Ratio PEmg < 20 29.35 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 4.37 Fail
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 1.74 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 0.45 Pass
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Fail
5. Earnings Growth EPSmg greater than 5 years ago Pass

Stage 2: Determination of Intrinsic Value

HSIC value Chart February 2016

EPSmg $5.20
MG Growth Estimate 7.61%
MG Value $123.38
Opinion Overvalued
MG Value based on 3% Growth $75.41
MG Value based on 0% Growth $44.21
Market Implied Growth Rate 10.42%
Current Price $152.63
% of Intrinsic Value 123.71%

Henry Schein Inc qualifies for the Enterprising Investor but not the more conservative Defensive Investor.  The Defensive Investor is concerned with the low current ratio, lack of dividends, and the PEmg and PB ratios.  The Enterprising Investor is only concerned by the lack of dividends.  As a result, all Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research into the company.

As for a valuation, the company appears to be overvalued after growing its EPSmg (normalized earnings) from $3.45 in 2011 to an estimated $5.20 for 2015.  This level of demonstrated earnings growth does not support the market’s implied estimate of 10.42% 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 below the price.

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on Henry Schein Inc (HSIC)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

Stage 3: Information for Further Research

HSIC Charts February 2016

Net Current Asset Value (NCAV) -$3.71
Graham Number $67.65
PEmg 29.35
Current Ratio 1.74
PB Ratio 4.37
Dividend Yield 0.00%
Number of Consecutive Years of Dividend Growth 0



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Most Recent Balance Sheet Figures

Balance Sheet Information Sep2015
Total Current Assets $3,120,173,000
Total Current Liabilities $1,797,281,000
Long-Term Debt $597,106,000
Total Assets $6,371,558,000
Intangible Assets $2,516,778,000
Total Liabilities $3,432,206,000
Shares Outstanding (Diluted Average) 84,084,000

Earnings Per Share History

Next Fiscal Year Estimate $5.77
Dec2014 $5.44
Dec2013 $4.93
Dec2012 $4.32
Dec2011 $3.97
Dec2010 $3.49
Dec2009 $3.44
Dec2008 $2.63
Dec2007 $2.36
Dec2006 $1.82
Dec2005 $1.58
Dec2004 $1.32
Dec2003 $1.44
Dec2002 $1.25
Dec2001 $1.00
Dec2000 $0.68
Dec1999 $0.61
Dec1998 $0.20
Dec1997 -$0.02
Dec1996 $0.51

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $5.20
Dec2014 $4.75
Dec2013 $4.28
Dec2012 $3.83
Dec2011 $3.45
Dec2010 $3.04
Dec2009 $2.67
Dec2008 $2.17
Dec2007 $1.86
Dec2006 $1.57
Dec2005 $1.40
Dec2004 $1.25
Dec2003 $1.14
Dec2002 $0.91
Dec2001 $0.66
Dec2000 $0.46
Dec1999 $0.32

Recommended Reading:

Other ModernGraham posts about the company

Henry Schein Inc. Valuation – October 2015 Update $HSIC
The Best Companies of the Medical Industry – September 2015
Henry Schein Inc. Analysis – Initial Coverage $HSIC

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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.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

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