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3 Medical Services Stocks to Buy to Navigate Industry Challenges
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The Medical Services sector is experiencing significant evolution driven by innovation and digital applications. Growing demand for remote treatment has led to a tremendous upsurge in digital healthcare options over the past few years. Demand for digital healthcare treatment continues to grow in the form of telemedicine-focused online medical and AI-powered technology services backed by the adoption of data and analytics.
According to a recent Mordor Intelligence report, the global healthcare analytics market is expected to surpass $130 billion by 2029, witnessing a CAGR of 22.9% from 2024 to 2029. Primary stakeholders — payers, healthcare professionals and patients — will benefit from all-new insights, services and levels of experience that next-generation healthcare-related data and analytical capabilities provide. Stocks like Elevance Health, Inc. (ELV - Free Report) , Doximity (DOCS - Free Report) and HealthEquity (HQY - Free Report) are expected to gain the most from the rapidly transforming healthcare services landscape.
However, in the post-pandemic era, manual workforce shortage within healthcare has become a worldwide problem, weighing heavily on healthcare infrastructure. According to an August 2024 report by Mercer, there will be a deficit of more than 100,000 healthcare workers in the United States by 2028. Within this, nursing assistants will have the biggest projected deficit compared to other healthcare occupations, signaling the need to improve talent attraction and retention strategies for this segment. By 2028, Mercer expects a projected deficit of over 73,000 nursing assistants nationwide. This has led to increased labor cost and health expenses.
Industry Description
The Zacks Medical Services industry comprises third-party service providers and caregivers appointed by core healthcare companies for economies of scale. The industry includes pharmacy benefit managers, contract research organizations, wireless MedTech companies, third-party testing labs, surgical facility providers and healthcare workforce solution providers, among others. Over the years, this industry has strategically moved from volume- to value-based care. This changing pattern of care calls for advanced facilities, thus increasing the need to appoint specialized external service providers. With the growing importance of effective healthcare management, the medical service industry has become an integral part of the modern healthcare system.
3 Trends Shaping the Future of the Medical Services Industry
Digital Revolution: With an increase in the adoption of digital platforms within the medical device space, remote monitoring, robotic surgeries, big-data analytics, 3D printing and electronic health records are gaining prominence in the United States. A 2024 digital health market report by Statista suggests that this market will witness a 9.2% CAGR from 2024 to 2028, resulting in a projected market volume of $275 billion by 2028. Other reports suggest that companies that adopted artificial intelligence technologies witnessed a 50% reduction in treatment costs and experienced more than 50% improvement in patient outcomes.
Revival in Nursing Care Market: With rising cognizance about the benefits of specialized medical caregiving, the need for healthcare workforce/staffing service providers has increased significantly. Despite challenges like workforce shortages and increased costs, the market is rebounding post-pandemic. Factors such as rising chronic diseases, healthcare awareness and strategic initiatives by companies and governments drive this growth. For example, the demand for nurses has increased manifold, driven by the rising incidence of chronic disorders in the United States, and is expected to be high in the days ahead. Per a Research and Markets report, the global healthcare staffing market size is expected to reach $62.8 billion by 2030, registering a CAGR of 6.9% from 2023 to 2030.
Staffing Shortage: Despite the end of the healthcare emergency (WHO declared the end of COVID-19 as a global health emergency on May 5), the trauma of the past few years’ uncertainty and commotion has forced frontline workers like doctors and medical staff to leave the field. Added to this, a drastic increase in the aging population in recent times (about 10,000 individuals aged 59-77 are joining Medicare plans daily) has made the healthcare staffing shortage more pronounced. In the article "A Public Health Crisis: Staffing Shortages in Health Care," published in Favorite Healthcare Staffing, WHO predicts a shortfall of 15 million healthcare workers worldwide in 2030. Needless to say, this supply shortage has led to a significant rise in healthcare wages. Going by a HR for Health report, increased labor costs and staffing challenges have led to a rise in hospital expenses. Hospitals have experienced a 15.6% increase in labor expenses per adjusted discharge compared to pre-pandemic levels.
Zacks Industry Rank Indicates Gloomy Prospects
The Zacks Medical Services industry falls within the broader Zacks Medical sector. It carries a Zacks Industry Rank #170, which places it in the bottom 32% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates dull near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.
We will present a few stocks that have the potential to outperform the market based on a strong earnings outlook. But it’s worth taking a look at the industry’s shareholder returns and current valuation first.
Industry Underperforms Sector and S&P 500
The Medical Services Industry has underperformed its sector and the S&P 500 over the past year. The stocks in this industry have collectively gained 8.9% during the said time frame compared with the Medical sector’s 12.5% rise and the S&P 500 composite’s surge of 34.3%.
One-Year Price Performance
Industry's Current Valuation
On the basis of forward 12-month price-to-earnings (P/E), which is commonly used for valuing medical stocks, the industry is currently trading at 15.01X compared with the S&P 500’s 22.09X and the sector’s 22.75X.
Over the last five years, the industry has traded as high as 19.80X, as low as 11.83X, and at the median of 15.52X, as the charts below show.
Price-to-Earnings Forward Twelve Months (F12M)
Price-to-Earnings Forward Twelve Months (F12M)
3 Stocks to Buy Right Now
Below, we present three stocks from the Medical Services industry that have been witnessing positive earnings estimate revisions and carry a Zacks Rank #1 (Strong Buy) or #2 (Buy) at present.
Elevance Health: Based in Indianapolis, IN, Elevance Health (previously named Anthem) is one of the largest publicly traded health insurers in the United States in terms of membership. ELV’s revenue growth, fueled by premium rate increases and rising memberships in commercial business, contributes to its positive trajectory. Strategic acquisitions and partnerships have fortified its business portfolio. A robust Medicare Advantage segment, combined with successful contract acquisitions, is poised to drive future memberships.
Elevance Health’s 2024 earnings growth rate is pegged at 12.4%. The Zacks Consensus Estimate for ELV’s 2024 revenues indicates a year-over-year rise of 1.5%. The stock sports a Zacks Rank #1 currently.
Price and Consensus: ELV
Doximity: It is a digital platform for U.S. medical professionals. The company's network members include over 80% of U.S. physicians across all specialties and practice areas. Doximity provides its verified clinical membership with digital tools built for medicine, enabling them to collaborate with colleagues, stay up to date with the latest medical news and research, manage their careers and on-call schedules and conduct virtual patient visits.
This Zacks Rank #1 stock’s fiscal 2025 expected earnings growth rate is pegged at 10.5%. The Zacks Consensus Estimate for DOCS’ fiscal 2025 revenues indicates a year-over-year rise of 9.4%.
Price and Consensus: DOCS
HealthEquity: Draper, UT-headquartered HealthEquity provides integrated solutions for healthcare account management, health reimbursement arrangement and flexible spending accounts for health plans, insurance companies and third-party administrators in the United States. HealthEquity’s sustained strength in Health Savings Accounts (HSAs) looks promising and is expected to enable it to maintain a leadership position in the HSA industry.
HQY’s fiscal 2025 expected earnings growth rate is pegged at 37.3%. The Zacks Consensus Estimate for HealthEquity’s fiscal 2025 revenues indicates a year-over-year rise of 18.2%. The stock carries a Zacks Rank #2 at present.
Price and Consensus: HQY
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3 Medical Services Stocks to Buy to Navigate Industry Challenges
The Medical Services sector is experiencing significant evolution driven by innovation and digital applications. Growing demand for remote treatment has led to a tremendous upsurge in digital healthcare options over the past few years. Demand for digital healthcare treatment continues to grow in the form of telemedicine-focused online medical and AI-powered technology services backed by the adoption of data and analytics.
According to a recent Mordor Intelligence report, the global healthcare analytics market is expected to surpass $130 billion by 2029, witnessing a CAGR of 22.9% from 2024 to 2029. Primary stakeholders — payers, healthcare professionals and patients — will benefit from all-new insights, services and levels of experience that next-generation healthcare-related data and analytical capabilities provide. Stocks like Elevance Health, Inc. (ELV - Free Report) , Doximity (DOCS - Free Report) and HealthEquity (HQY - Free Report) are expected to gain the most from the rapidly transforming healthcare services landscape.
However, in the post-pandemic era, manual workforce shortage within healthcare has become a worldwide problem, weighing heavily on healthcare infrastructure. According to an August 2024 report by Mercer, there will be a deficit of more than 100,000 healthcare workers in the United States by 2028. Within this, nursing assistants will have the biggest projected deficit compared to other healthcare occupations, signaling the need to improve talent attraction and retention strategies for this segment. By 2028, Mercer expects a projected deficit of over 73,000 nursing assistants nationwide. This has led to increased labor cost and health expenses.
Industry Description
The Zacks Medical Services industry comprises third-party service providers and caregivers appointed by core healthcare companies for economies of scale. The industry includes pharmacy benefit managers, contract research organizations, wireless MedTech companies, third-party testing labs, surgical facility providers and healthcare workforce solution providers, among others. Over the years, this industry has strategically moved from volume- to value-based care. This changing pattern of care calls for advanced facilities, thus increasing the need to appoint specialized external service providers. With the growing importance of effective healthcare management, the medical service industry has become an integral part of the modern healthcare system.
3 Trends Shaping the Future of the Medical Services Industry
Digital Revolution: With an increase in the adoption of digital platforms within the medical device space, remote monitoring, robotic surgeries, big-data analytics, 3D printing and electronic health records are gaining prominence in the United States. A 2024 digital health market report by Statista suggests that this market will witness a 9.2% CAGR from 2024 to 2028, resulting in a projected market volume of $275 billion by 2028. Other reports suggest that companies that adopted artificial intelligence technologies witnessed a 50% reduction in treatment costs and experienced more than 50% improvement in patient outcomes.
Revival in Nursing Care Market: With rising cognizance about the benefits of specialized medical caregiving, the need for healthcare workforce/staffing service providers has increased significantly. Despite challenges like workforce shortages and increased costs, the market is rebounding post-pandemic. Factors such as rising chronic diseases, healthcare awareness and strategic initiatives by companies and governments drive this growth. For example, the demand for nurses has increased manifold, driven by the rising incidence of chronic disorders in the United States, and is expected to be high in the days ahead. Per a Research and Markets report, the global healthcare staffing market size is expected to reach $62.8 billion by 2030, registering a CAGR of 6.9% from 2023 to 2030.
Staffing Shortage: Despite the end of the healthcare emergency (WHO declared the end of COVID-19 as a global health emergency on May 5), the trauma of the past few years’ uncertainty and commotion has forced frontline workers like doctors and medical staff to leave the field. Added to this, a drastic increase in the aging population in recent times (about 10,000 individuals aged 59-77 are joining Medicare plans daily) has made the healthcare staffing shortage more pronounced. In the article "A Public Health Crisis: Staffing Shortages in Health Care," published in Favorite Healthcare Staffing, WHO predicts a shortfall of 15 million healthcare workers worldwide in 2030. Needless to say, this supply shortage has led to a significant rise in healthcare wages. Going by a HR for Health report, increased labor costs and staffing challenges have led to a rise in hospital expenses. Hospitals have experienced a 15.6% increase in labor expenses per adjusted discharge compared to pre-pandemic levels.
Zacks Industry Rank Indicates Gloomy Prospects
The Zacks Medical Services industry falls within the broader Zacks Medical sector. It carries a Zacks Industry Rank #170, which places it in the bottom 32% of more than 250 Zacks industries.
The group’s Zacks Industry Rank, which is basically the average of the Zacks Rank of all the member stocks, indicates dull near-term prospects. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.
We will present a few stocks that have the potential to outperform the market based on a strong earnings outlook. But it’s worth taking a look at the industry’s shareholder returns and current valuation first.
Industry Underperforms Sector and S&P 500
The Medical Services Industry has underperformed its sector and the S&P 500 over the past year. The stocks in this industry have collectively gained 8.9% during the said time frame compared with the Medical sector’s 12.5% rise and the S&P 500 composite’s surge of 34.3%.
One-Year Price Performance
Industry's Current Valuation
On the basis of forward 12-month price-to-earnings (P/E), which is commonly used for valuing medical stocks, the industry is currently trading at 15.01X compared with the S&P 500’s 22.09X and the sector’s 22.75X.
Over the last five years, the industry has traded as high as 19.80X, as low as 11.83X, and at the median of 15.52X, as the charts below show.
Price-to-Earnings Forward Twelve Months (F12M)
Price-to-Earnings Forward Twelve Months (F12M)
3 Stocks to Buy Right Now
Below, we present three stocks from the Medical Services industry that have been witnessing positive earnings estimate revisions and carry a Zacks Rank #1 (Strong Buy) or #2 (Buy) at present.
You can see the complete list of today’s Zacks #1 Rank stocks here.
Elevance Health: Based in Indianapolis, IN, Elevance Health (previously named Anthem) is one of the largest publicly traded health insurers in the United States in terms of membership. ELV’s revenue growth, fueled by premium rate increases and rising memberships in commercial business, contributes to its positive trajectory. Strategic acquisitions and partnerships have fortified its business portfolio. A robust Medicare Advantage segment, combined with successful contract acquisitions, is poised to drive future memberships.
Elevance Health’s 2024 earnings growth rate is pegged at 12.4%. The Zacks Consensus Estimate for ELV’s 2024 revenues indicates a year-over-year rise of 1.5%. The stock sports a Zacks Rank #1 currently.
Price and Consensus: ELV
Doximity: It is a digital platform for U.S. medical professionals. The company's network members include over 80% of U.S. physicians across all specialties and practice areas. Doximity provides its verified clinical membership with digital tools built for medicine, enabling them to collaborate with colleagues, stay up to date with the latest medical news and research, manage their careers and on-call schedules and conduct virtual patient visits.
This Zacks Rank #1 stock’s fiscal 2025 expected earnings growth rate is pegged at 10.5%. The Zacks Consensus Estimate for DOCS’ fiscal 2025 revenues indicates a year-over-year rise of 9.4%.
Price and Consensus: DOCS
HealthEquity: Draper, UT-headquartered HealthEquity provides integrated solutions for healthcare account management, health reimbursement arrangement and flexible spending accounts for health plans, insurance companies and third-party administrators in the United States. HealthEquity’s sustained strength in Health Savings Accounts (HSAs) looks promising and is expected to enable it to maintain a leadership position in the HSA industry.
HQY’s fiscal 2025 expected earnings growth rate is pegged at 37.3%. The Zacks Consensus Estimate for HealthEquity’s fiscal 2025 revenues indicates a year-over-year rise of 18.2%. The stock carries a Zacks Rank #2 at present.
Price and Consensus: HQY