Down More Than 20% YTD, Grab These 3 Buy-Rated Healthcare Stocks for a 2022 Rebound

Healthcare companies have invested significantly in developing breakthrough products and advancing their technological footprint over the past decade. The Covid-19 pandemic has accelerated the paradigm shift toward advanced technologies.

According to the latest data reported by the Center’s for Medicare and Medicaid Services Office of the Actuary, national healthcare spending in the country rose to $12,530 per person, or $4.1 trillion in 2020, which can be attributed to a 36% increase in federal spending during the height of the pandemic. Additionally, according to a Verified Market Research report, the global consumer healthcare market is expected to reach $665.37 billion by 2028, growing at a CAGR of 8.56%.

The healthcare sector has been performing well, amidst increased volatility, as evident by the Health Care Select Sector SPDR Fund (XLV) gain of 5.6% over the past month, outperforming the broader SPDR S&P 500 ETF Trust (SPY) 2.5% gains over the same period. Healthcare stocks Fresenius Medical Care AG & Co. KGaA (FMS), Encompass Health Corporation (EHC), and Taro Pharmaceutical Industries Ltd. (TARO) are currently down more than 20% year-to-date but are expected to rebound in the coming year. These stocks are rated buy-rated in our proprietary POWR Ratings system.

Fresenius Medical Care AG & Co. KGaA (FMS)

FMS operates as an international provider of dialysis care and related dialysis care services. Headquartered in Bad Homburg, Germany, the company offers dialysis treatment and diagnostic services and provides dialysis products.

On December 21, FMS launched its custom-built mobile app, ‘Carrie,’ connecting FMS’ kidney-care nurses and clinical teams in Asia-Pacific. The app is expected to benefit the company by boosting connections among professionals and improving the quality of the care experience provided to patients.

On November 10, FMS showcased its new digitalized options for kidney patients, including two new machines. The offerings enable the company’s healthcare professionals to remotely manage and monitor patients going through their home-dialysis treatment. This should add substantially to FMS’s revenue stream.

For the fiscal third quarter ended September 30, FMS’ revenue increased 0.6% year-over-year to €4.44 billion ($5.02 billion). This can be attributed to a rise of 0.9% from the prior-year quarter in revenue from health care services to €3.53 billion ($3.99 billion). Comprehensive income attributable to shareholders of FMS came in at €594.98 million ($672.71 million), up substantially from its negative year-ago value.

The consensus EPS estimate of $3.02 for the next year (fiscal 2022) indicates a 12.3% year-over-year increase. Likewise, the consensus revenue estimate for the upcoming year of $21.28 billion reflects an improvement of 4.8% from the same period last year.

The stock has declined 22.8% year-to-date to close Thursday’s trading session at $32.07. However, it has gained 6.6% over the past month. It is currently trading 26% below its 52-week high of $43.33.

FMS’ strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, which equates to Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

FMS has a Stability grade of A and a Value and Quality grade of B. In the 88-stock Medical – Services industry, it is ranked #4. Click here to see the additional POWR Ratings for FMS (Growth, Momentum, and Sentiment).

Encompass Health Corporation (EHC)

Operating through the two broad segments of Inpatient Rehabilitation and Home Health and Hospice, EHC is a facility-based and home-based post-acute healthcare services provider in the United States. The company offers specialized rehabilitative treatments and Medicare-certified home-nursing services.

On December 14, EHC announced its plans of constructing a freestanding, 40-bed inpatient rehabilitation hospital near Cleveland, Ohio. The planned hospital is expected to be a part of EHC’s national network of inpatient rehabilitation hospitals and home health and hospice agencies. The company also shared its plans to build a freestanding, 27-bed inpatient rehabilitation hospital near Columbia, South Carolina, and a 40-bed inpatient rehabilitation hospital in Amarillo, Texas. These developments should expand EHC’s footprint and help the company grow.

On October 21, EHC declared a quarterly dividend on its common stock of $0.28 per share, payable on January 18, 2022.

EHC’s net operating revenues increased 9.4% year-over-year to $1.28 billion in the fiscal third quarter ended September 30. Adjusted EPS improved 32.1% from the same period last year to $1.03. Adjusted EBITDA rose 6.7% from the prior-year quarter to $245.60 million.

Street EPS estimate for the current quarter (ending December 2021) of $1.05 reflects a 12.9% year-over-year rise. Likewise, Street revenue estimate of $1.31 billion for the ongoing quarter indicates an increase of 7.7% from the same period last year. Moreover, EHC has an impressive surprise earnings history, as it has topped consensus EPS estimates in three out of the trailing four quarters.

The stock has declined 22.5% year-to-date but gained 4.8% over the past month to close Thursday’s trading session at $64.11. It is currently trading 28.5% below its 52-week high of $89.68.

It’s no surprise that EHC has an overall B rating, which translates to Buy in our POWR Rating system. The stock has a B grade for Value and Sentiment. It is ranked #3 out of the 14 stocks in the Medical – Hospitals industry. To see the additional POWR Ratings for EHC’s Growth, Momentum, Stability, and Quality, click here.

Taro Pharmaceutical Industries Ltd. (TARO)

TARO operates as a science-based pharmaceutical company that develops, manufactures, and markets over-the-counter pharmaceutical products. The company based in Haifa, Israel, develops and offers active pharmaceutical ingredients for use in finished products.

On October 28, TARO announced that it has recently received U.S. Food and Drug Administration (FDA) approval for its Abbreviated New Drug Application (ANDA). This might prove to be profitable for the company.

For the six months ended September 30, TARO’s net sales increased 7.1% year-over-year to $279.10 million. Net income and net income per ordinary share attributable to TARO for the period stood at $4.55 million and $0.12, both registering a substantial increase from their negative year-ago values.

Analysts expect TARO’s EPS to increase 237.2% year-over-year to $1.07 in the next quarter (ending March 2022). Likewise, Street expects revenue to improve 7.4% from the prior-year quarter to $159.34 million in the upcoming quarter.

TARO’s shares have declined 30.6% year-to-date to close Thursday’s trading session at $50.98. It has gained 4.5% intra-day. The stock is currently trading 36.3% below its 52-week high of $80.00.

TARO’s promising prospects are reflected in its POWR Ratings. The stock has an overall B rating, which translates to Buy in our proprietary rating system. The stock has a Value grade of A and a Stability and Quality grade of B. In the 194-stock Medical – Pharmaceuticals industry, it is ranked #23.

In addition to the POWR Rating grades we’ve stated above, one can see TARO ratings for Growth, Momentum, and Sentiment here.

FMS shares were trading at $32.28 per share on Monday afternoon, up $0.21 (+0.65%). Year-to-date, FMS has declined -21.23%, versus a 29.00% rise in the benchmark S&P 500 index during the same period.

Anushka is an analyst whose interest in understanding the impact of broader economic changes on financial markets motivated her to pursue a career in investment research.

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