Expansion In BioHorizons And Acentus Will Drive Future Success

Key Takeaways

• High-growth and high-margin businesses, along with own brand products, are set to enhance revenue growth and net margins significantly in the coming years.
  
• Strategic acquisitions, product line expansions, and technological shifts are expected to drive incremental sales and boost profitability.
  
• Pricing pressures, patent expirations, and modest market improvements present challenges to revenue and growth targets in Henry Schein's dental and medical product segments.

Catalysts

Provides health care products and services to office-based dental and medical practitioners, and alternate sites of care worldwide.

• The completion of Henry Schein's '22 to '24 BOLD+1 Strategic Plan has resulted in more than half of the company's profits coming from high-growth, high-margin businesses and own brand products, which is set to enhance revenue growth and net margins over the next few years.
  
• A simplified organizational structure and the appointment of leadership for the Global Distribution and Value-Added Services Group and the Global Technology Group are expected to drive sales growth and profitability by leveraging the product portfolio and expanding e-commerce, impacting both revenue and net margins positively.
  
• The acquisition of Acentus and expansion in the home care solutions business are anticipated to contribute significantly to revenue, aiming for an annual run rate of approximately $400 million, with a focus on the growing market for continuous glucose monitors.
  
• The roll-out and growth in sales of the BioHorizons implant product line, particularly in the value segment, and the expected new customer acquisitions will drive incremental sales, likely boosting both revenue and net margins.
  
• Shifts towards cloud-based practice management software and a SaaS model aim to create headwinds on revenue in the short term but are expected to result in higher recurring subscription revenues and operating margin uplift in the long term, supporting overall earnings growth.

Henry Schein Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Henry Schein's revenue will grow by 3.5% annually over the next 3 years.
• Analysts assume that profit margins will increase from 3.1% today to 4.2% in 3 years time.
• Analysts expect earnings to reach $591.8 million (and earnings per share of $4.77) by about March 2028, up from $390.0 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 18.4x on those 2028 earnings, down from 22.9x today. This future PE is lower than the current PE for the US Healthcare industry at 23.9x.
• Analysts expect the number of shares outstanding to decline by 3.03% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.31%, as per the Simply Wall St company report.

Henry Schein Future Earnings Per Share Growth

Risks

• Market growth for dental and medical products continued to be below the long-term guidance range, which may impact expected revenue and growth projections.
  
• Customer migration to value-priced products suggests pricing pressures that could affect profit margins and earnings.
  
• The orthodontic sales decrease due to a product going off patent indicates risks in maintaining revenues and profit margins in the specialty products sector.
  
• Flattened market share for U.S. dental distribution combined with slow end-of-year patient traffic and timing impacts from holidays reflect challenges in achieving growth targets and maintaining stable revenues.
  
• Revenue guidance for 2025 assumes limited price appreciation and modest market improvements, highlighting potential risk to achieving higher revenue and earnings growth in an uncertain market environment.

Valuation

• The analysts have a consensus price target of $80.231 for Henry Schein based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $90.0, and the most bearish reporting a price target of just $55.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $14.0 billion, earnings will come to $591.8 million, and it would be trading on a PE ratio of 18.4x, assuming you use a discount rate of 6.3%.
• Given the current share price of $72.0, the analyst price target of $80.23 is 10.3% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.