Personal health and wellness is one of the many secular tailwinds for healthcare companies. Shareholders who bet on the industry have been rewarded lately as healthcare stocks have returned 12.9% over the past six months, topping the S&P 500 by 6.8 percentage points.
Regardless of these results, investors must exercise caution as many businesses in this space are subject to heavy regulation that can influence their earnings potential. On that note, here are two healthcare stocks boasting durable advantages and one that may face trouble.
One Healthcare Stock to Sell:
Phibro Animal Health (PAHC)
Market Cap: $1.27 billion
With a portfolio of approximately 800 product lines serving farmers and veterinarians in 90 countries, Phibro Animal Health (NASDAQ: PAHC) develops, manufactures, and markets health products for livestock and companion animals, including antibacterials, vaccines, nutritional supplements, and mineral additives.
Why Does PAHC Worry Us?
- Modest revenue base of $1.5 billion gives it less fixed cost leverage and fewer distribution channels than larger companies
- Estimated sales growth of 2.2% for the next 12 months implies demand will slow from its two-year trend
- Poor free cash flow margin of 0.8% for the last five years limits its freedom to invest in growth initiatives, execute share buybacks, or pay dividends
Phibro Animal Health’s stock price of $31.44 implies a valuation ratio of 9.8x forward P/E. Dive into our free research report to see why there are better opportunities than PAHC.
Two Healthcare Stocks to Watch:
Cigna (CI)
Market Cap: $77.99 billion
With roots dating back to 1792 and serving millions of customers across the globe, The Cigna Group (NYSE: CI) provides healthcare services through its Evernorth Health Services and Cigna Healthcare segments, offering pharmacy benefits, specialty care, and medical plans.
Why Are We Positive on CI?
- Solid 16.1% annual revenue growth over the last two years indicates its offerings solve complex business issues
- Dominant market position is represented by its $277.7 billion in revenue, which gives it negotiating power over membership pricing and reimbursement rates
- Earnings per share have comfortably outperformed the peer group average over the last five years, increasing by 10.9% annually
Cigna is trading at $278.99 per share, or 9.2x forward P/E. Is now a good time to buy? Find out in our full research report, it’s free.
Astrana Health (ASTH)
Market Cap: $1.98 billion
Formerly known as Apollo Medical Holdings until early 2024, Astrana Health (NASDAQ: ASTH) operates a technology-powered healthcare platform that enables physicians to deliver coordinated care while successfully participating in value-based payment models.
Why Do We Like ASTH?
- Annual revenue growth of 55.7% over the last two years was superb and indicates its market share increased during this cycle
- Sales outlook for the upcoming 12 months implies the business will stay on its desirable two-year growth trajectory
- Earnings per share grew by 13.2% annually over the last five years, massively outpacing its peers
At $45.02 per share, Astrana Health trades at 14.8x forward P/E. Is now the time to initiate a position? See for yourself in our in-depth research report, it’s free.
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