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3 Amazing Health Service Stocks to Brave "Labordemic" in 2024
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The roaring pandemic years not only redefined the demand pattern of consumers but also significantly impacted the supply side. The impact was quite pronounced in the healthcare space in the form of a staffing shortage, which has been lately termed as “labordemic.”
In the last couple of years, this essential sector faced massive clinical staffing shortages, so much so that it dented the sector’s revenues significantly. This impact has been so deep that even now, when the pandemic is officially over, leading to adequate market corrections, market watchers and investors are still worried about the workforce challenges. They expect the challenges to linger in 2024 and disrupt the performance of the industry players.
Fitch, in its October 2023 report, noted that “labordemic,” both clinical and non-clinical, will likely continue through 2024 if not addressed adequately. On the contrary, the Staffing Industry Analysts 2024 report published in December projected a gradual stabilization of the staffing industry’s regulatory environment in 2024.
In spite of the challenges, stocks like Medpace (MEDP - Free Report) , Elevance Health Inc. (ELV - Free Report) and HealthEquity (HQY - Free Report) are expected to gain from the rapidly transforming healthcare services landscape.
Let us delve deeper.
The Labor Crunch in a Gist
The pandemic dealt a huge and lingering blow to the manual workforce in healthcare infrastructure. Earlier this year, WHO estimated a shortage of 10 million health workers in low- and lower-middle-income countries by the end of 2023.
In April 2023, the National Council of State Boards of Nursing revealed that 100,000 nurses left the workforce during the pandemic and by 2027, almost 900,000, or almost one-fifth of 4.5 million total registered nurses, intend to leave the workforce, threatening the national health care system at large if solutions are not enacted.
It would be wrong if we blame COVID-19-led burnout rates to be solely responsible for this extreme labor demand-supply disequilibrium. A growing aging population has been recognized as another prime reason behind this issue. While there has been a significant ramp-up in demand for healthcare services in the past four years due to the healthcare emergency, a rising aging population is creating further demand for health services. At the same time, an increasing number of health professionals are reaching retirement age, and a lesser number of young people are entering the sector, making the demand-supply gap wider.
Anticipated Revenue Disruption of the Sector Players
Fitch anticipates the disruption to continue even in 2024, impacting the sector players’ performance by a significant magnitude. Per the median report, median operating and operating EBITDA margins declined to 0.2% and 5.8%, respectively, in fiscal 2022 compared with 3% and 8.9% in fiscal 2021. This weak margin scenario continued in 2023 and is expected to persist in 2024. An inelastic revenue model and higher labor costs due to still tight labor conditions are the reasons behind this difficult state. The situation is getting all the more difficult with entrepreneurs’ growing tendency to appoint locum labors (temporary) at cheap rates to mitigate the operational expenses of the business. Going by a recent report of CHG Healthcare (as mentioned by Modio Health), “32% of healthcare facilities plan to use locum physicians more often…with 40+% of facilities stating that ‘meeting rising patient demand’ (42%) and ‘supplementing staff during peak periods’ (41%) are key reasons..”.
Solutions to Curb the Crisis
Although some industry players believe locum tenens to be a concrete solution to fill this demand-supply gap of healthcare labor, in reality, this might once again demotivate the younger population to enter into the healthcare sector and face the high exposure risk.
According to Fitch, providers' success in attracting and retaining permanent staff is key to mitigating stress on margins. Other than that, the implementation of variable work hours, flexible working options and continued upgrades in distant and remote care techniques are key areas to focus on in order to redirect the falling trend of manual labor supply.
3 Stocks to Gain
Below we have discussed three healthcare service stocks that have been witnessing earnings growth and have the potential to survive the trying times. The stocks carry a Zacks Rank #2 (Buy) each. Revenue estimates also look encouraging.
Medpace: Based in Cincinnati, OH, Medpace is a scientifically driven, global, full-service clinical contract research organization providing Phase I-IV clinical development services to the biotechnology, pharmaceutical and medical device industries. In the last reported third quarter of 2023, the company registered a 28.3% increase in revenues, reflecting a backlog conversion rate of 19.1%.
Medpace’s 2024 expected earnings growth rate is pegged at 16.2%. The Zacks Consensus Estimate for Medpace’s 2024 revenues indicates a year-over-year rise of 15.5%.
Elevance Health: Based in Indianapolis, IN, Elevance Health is one of the largest publicly traded health insurers in the United States in terms of membership. The company is an independent licensee of the Blue Cross Blue Shield Association. Medical membership of Elevance Health, as of Mar 31, 2023, totaled 48.1 million. The company's revenue growth, fueled by premium rate increases and expanding memberships, contributes to its positive trajectory.
Elevance Health’s 2024 expected earnings growth rate is pegged at 11.9%. The Zacks Consensus Estimate for Elevance Health’s 2024 revenues indicates a year-over-year rise of 3.3%.
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 as this is expected to enable it to maintain a leadership position in the HSA industry.
HealthEquity’s fiscal 2025 (ending Jan 2024) expected earnings growth rate is pegged at 30.9%. The Zacks Consensus Estimate for HealthEquity’s fiscal 2025 revenues indicates a year-over-year rise of 15.8%.
Image: Bigstock
3 Amazing Health Service Stocks to Brave "Labordemic" in 2024
The roaring pandemic years not only redefined the demand pattern of consumers but also significantly impacted the supply side. The impact was quite pronounced in the healthcare space in the form of a staffing shortage, which has been lately termed as “labordemic.”
In the last couple of years, this essential sector faced massive clinical staffing shortages, so much so that it dented the sector’s revenues significantly. This impact has been so deep that even now, when the pandemic is officially over, leading to adequate market corrections, market watchers and investors are still worried about the workforce challenges. They expect the challenges to linger in 2024 and disrupt the performance of the industry players.
Fitch, in its October 2023 report, noted that “labordemic,” both clinical and non-clinical, will likely continue through 2024 if not addressed adequately. On the contrary, the Staffing Industry Analysts 2024 report published in December projected a gradual stabilization of the staffing industry’s regulatory environment in 2024.
In spite of the challenges, stocks like Medpace (MEDP - Free Report) , Elevance Health Inc. (ELV - Free Report) and HealthEquity (HQY - Free Report) are expected to gain from the rapidly transforming healthcare services landscape.
Let us delve deeper.
The Labor Crunch in a Gist
The pandemic dealt a huge and lingering blow to the manual workforce in healthcare infrastructure. Earlier this year, WHO estimated a shortage of 10 million health workers in low- and lower-middle-income countries by the end of 2023.
In April 2023, the National Council of State Boards of Nursing revealed that 100,000 nurses left the workforce during the pandemic and by 2027, almost 900,000, or almost one-fifth of 4.5 million total registered nurses, intend to leave the workforce, threatening the national health care system at large if solutions are not enacted.
It would be wrong if we blame COVID-19-led burnout rates to be solely responsible for this extreme labor demand-supply disequilibrium. A growing aging population has been recognized as another prime reason behind this issue. While there has been a significant ramp-up in demand for healthcare services in the past four years due to the healthcare emergency, a rising aging population is creating further demand for health services. At the same time, an increasing number of health professionals are reaching retirement age, and a lesser number of young people are entering the sector, making the demand-supply gap wider.
Anticipated Revenue Disruption of the Sector Players
Fitch anticipates the disruption to continue even in 2024, impacting the sector players’ performance by a significant magnitude. Per the median report, median operating and operating EBITDA margins declined to 0.2% and 5.8%, respectively, in fiscal 2022 compared with 3% and 8.9% in fiscal 2021. This weak margin scenario continued in 2023 and is expected to persist in 2024. An inelastic revenue model and higher labor costs due to still tight labor conditions are the reasons behind this difficult state. The situation is getting all the more difficult with entrepreneurs’ growing tendency to appoint locum labors (temporary) at cheap rates to mitigate the operational expenses of the business. Going by a recent report of CHG Healthcare (as mentioned by Modio Health), “32% of healthcare facilities plan to use locum physicians more often…with 40+% of facilities stating that ‘meeting rising patient demand’ (42%) and ‘supplementing staff during peak periods’ (41%) are key reasons..”.
Solutions to Curb the Crisis
Although some industry players believe locum tenens to be a concrete solution to fill this demand-supply gap of healthcare labor, in reality, this might once again demotivate the younger population to enter into the healthcare sector and face the high exposure risk.
According to Fitch, providers' success in attracting and retaining permanent staff is key to mitigating stress on margins. Other than that, the implementation of variable work hours, flexible working options and continued upgrades in distant and remote care techniques are key areas to focus on in order to redirect the falling trend of manual labor supply.
3 Stocks to Gain
Below we have discussed three healthcare service stocks that have been witnessing earnings growth and have the potential to survive the trying times. The stocks carry a Zacks Rank #2 (Buy) each. Revenue estimates also look encouraging.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Medpace: Based in Cincinnati, OH, Medpace is a scientifically driven, global, full-service clinical contract research organization providing Phase I-IV clinical development services to the biotechnology, pharmaceutical and medical device industries. In the last reported third quarter of 2023, the company registered a 28.3% increase in revenues, reflecting a backlog conversion rate of 19.1%.
Medpace’s 2024 expected earnings growth rate is pegged at 16.2%. The Zacks Consensus Estimate for Medpace’s 2024 revenues indicates a year-over-year rise of 15.5%.
Medpace Holdings, Inc. Price
Medpace Holdings, Inc. price | Medpace Holdings, Inc. Quote
Elevance Health: Based in Indianapolis, IN, Elevance Health is one of the largest publicly traded health insurers in the United States in terms of membership. The company is an independent licensee of the Blue Cross Blue Shield Association. Medical membership of Elevance Health, as of Mar 31, 2023, totaled 48.1 million. The company's revenue growth, fueled by premium rate increases and expanding memberships, contributes to its positive trajectory.
Elevance Health’s 2024 expected earnings growth rate is pegged at 11.9%. The Zacks Consensus Estimate for Elevance Health’s 2024 revenues indicates a year-over-year rise of 3.3%.
Elevance Health, Inc. Price
Elevance Health, Inc. price | Elevance Health, Inc. Quote
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 as this is expected to enable it to maintain a leadership position in the HSA industry.
HealthEquity’s fiscal 2025 (ending Jan 2024) expected earnings growth rate is pegged at 30.9%. The Zacks Consensus Estimate for HealthEquity’s fiscal 2025 revenues indicates a year-over-year rise of 15.8%.
HealthEquity, Inc. Price
HealthEquity, Inc. price | HealthEquity, Inc. Quote