Medical Stocks

Henry Schein Inc Valuation – January 2019 $HSIC

Company Profile (excerpt from Reuters): Henry Schein, Inc., incorporated on December 23, 1992, is a provider of healthcare products and services primarily to office-based dental, animal health and medical practitioners. The Company operates through two segments: healthcare distribution, and technology and value-added services. The Company provides its services to dental practitioners and laboratories, animal health clinics and physician practices, as well as government, institutional healthcare clinics and other alternate care clinics. As of December 31, 2016, the Company operated in 33 countries, including the United States, Australia, Austria, Belgium, Brazil, Canada, Chile, China, the Czech Republic, Denmark, France, Germany, Hong Kong Special Administrative Region, Iceland, Ireland, Israel, Italy, Japan, Luxembourg, Malaysia, the Netherlands, New Zealand, Norway, Poland, Portugal, Romania, Slovakia, South Africa, Spain, Sweden, Switzerland, Thailand and the United Kingdom.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of HSIC – January 2019

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 $11,356,631,000 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.30 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 71.93% Pass
6. Moderate PEmg Ratio PEmg < 20 24.03 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 3.35 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 1.30 Fail
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 1.04 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

EPSmg $3.10
MG Growth Estimate 4.56%
MG Value $54.64
Opinion Overvalued
MG Grade D
MG Value based on 3% Growth $44.95
MG Value based on 0% Growth $26.35
Market Implied Growth Rate 7.77%
Current Price $74.50
% of Intrinsic Value 136.35%

Henry Schein, Inc. does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, poor dividend history, and the high PEmg and PB ratios. The Enterprising Investor has concerns regarding the low current ratio, and the lack of dividends. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.

As for a valuation, the company appears to be Overvalued after growing its EPSmg (normalized earnings) from $2.38 in 2014 to an estimated $3.1 for 2018. This level of demonstrated earnings growth does not support the market’s implied estimate of 7.77% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value below the price.

At the time of valuation, further research into Henry Schein, Inc. revealed the company was trading above its Graham Number of $39.02. The company does not pay a dividend. Its PEmg (price over earnings per share – ModernGraham) was 24.03, which was below the industry average of 52.7, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-5.08.

Henry Schein, Inc. scores quite poorly in the ModernGraham grading system, with an overall grade of D.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$5.08
Graham Number $39.02
PEmg 24.03
Current Ratio 1.30
PB Ratio 3.35
Current Dividend $0.00
Dividend Yield 0.00%
Number of Consecutive Years of Dividend Growth 0

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Most Recent Balance Sheet Figures

Balance Sheet Information 9/1/2018
Total Current Assets $4,193,952,000
Total Current Liabilities $3,229,785,000
Long-Term Debt $1,000,315,000
Total Assets $8,390,310,000
Intangible Assets $3,303,882,000
Total Liabilities $4,973,594,000
Shares Outstanding (Diluted Average) 153,614,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $3.70
Dec2017 $2.57
Dec2016 $3.10
Dec2015 $2.85
Dec2014 $2.72
Dec2013 $2.47
Dec2012 $2.16
Dec2011 $1.99
Dec2010 $1.75
Dec2009 $1.72
Dec2008 $1.32
Dec2007 $1.18
Dec2006 $0.91
Dec2005 $0.79
Dec2004 $0.33
Dec2003 $0.36
Dec2002 $0.31
Dec2001 $0.25
Dec2000 $0.34
Dec1999 $0.30
Dec1998 $0.10

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $3.10
Dec2017 $2.78
Dec2016 $2.81
Dec2015 $2.59
Dec2014 $2.38
Dec2013 $2.14
Dec2012 $1.92
Dec2011 $1.73
Dec2010 $1.52
Dec2009 $1.33
Dec2008 $1.06
Dec2007 $0.86
Dec2006 $0.65
Dec2005 $0.48
Dec2004 $0.32
Dec2003 $0.32
Dec2002 $0.29

Recommended Reading:

Other ModernGraham posts about the company

Henry Schein Inc Valuation – March 2018 $HSIC
Henry Schein Inc Valuation – July 2016 $HSIC
Henry Schein Inc Valuation – February 2016 Update $HSIC
Henry Schein Inc. Valuation – October 2015 Update $HSIC
The Best Companies of the Medical Industry – September 2015

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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.  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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