The medical sector is expected to grow steadily as a result of technological advancements, an aging population, and the prevalence of chronic diseases.

Given the industry’s growth prospects, investors could consider buying fundamentally sound medical stocks McKesson Corporation (MCK), Zimmer Biomet Holdings, Inc. (ZBH) and Fresenius SE & Co. KGaA (FSNUY) for solid returns.

Before delving deeper into their fundamentals, let’s discuss what’s happening in the medical industry.

According to Statista, the worldwide pharmaceuticals market is predicted to grow at a 6.2% CAGR to reach $1.47 trillion by 2028. Oncology drugs are the largest segment, with a forecasted market volume of $188.20 billion in 2023.

The medical devices market in the US is expected to be worth around $246.51 billion by 2032, increasing at a CAGR of 5.6%. The market's expansion is being fueled by the increasing demand for minimally invasive procedures and the need for efficient healthcare delivery systems.

Also, healthcare providers are expanding their spending in IT services and software. According to Gartner, healthcare and life sciences enterprise IT spending will increase 9.1% in 2023 to $240.5 billion in constant currency.

Moreover, investors’ interest in medical stocks is evident from Vanguard Health Care ETF’s (VHT) 5.6% returns over the past month.

Considering these conducive trends, let’s look at the fundamentals of the three medical stocks.

McKesson Corporation (MCK)

MCK is a global healthcare services company with segments in pharmaceutical distribution, technology solutions, medical-surgical supply, and international operations. It provides a range of products and services to healthcare providers worldwide.

MCK’s forward non-GAAP P/E multiple of 16.10 is 14.7% lower than the industry average of 18.87. Its forward EV/Sales multiple of 0.21% is 94.2% lower than the industry average of 3.56.

MCK’s trailing-12-month levered FCF margin of 1.68% is 468% higher than the industry average of 0.29%. Its trailing-12-month EBIT margin of 1.50% is 85.1% higher than the industry average of 0.81%.

For the fiscal second quarter, which ended September 30, 2023, MCK’s revenues grew 10.1% year-over-year to $77.22 billion. The company’s adjusted EPS amounted to $6.23, up 2.8% from the prior year’s period. Its adjusted gross profit and adjusted earnings stood at $3.05 billion and $841 million, respectively.

Analysts expect MCK’s revenue to increase 10.3% year-over-year to $305.20 billion for the year ending March 2024. Its EPS is expected to grow 5.3% year-over-year to $27.30 for the same period. It surpassed EPS estimates in all four trailing quarters. The stock has gained 31.9% over the past nine months to close the last trading session at $447.54.

MCK’s POWR Ratings reflect this promising outlook. The stock has an overall rating of A, equating to a Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.

MCK also has a B grade for Value, Stability and Sentiment. It is ranked #3 out of 65 stocks in the Medical - Services industry. Click here for the additional POWR Ratings for Growth, Momentum and Quality for MCK.

Zimmer Biomet Holdings, Inc. (ZBH)

ZBH operates as a medical technology company in the Americas, Europe, the Middle East, Africa, and Asia Pacific.

ZBH’s forward EV/EBITDA multiple of 12.05 is 9.9% lower than the industry average of 13.37. Its forward EV/EBIT multiple of 14.48% is 16.7% lower than the industry average of 17.38.

ZBH’s trailing-12-month levered FCF margin of 15.20% is significantly higher than the industry average of 0.29%. Its trailing-12-month EBIT margin of 19.84% is significantly higher than the industry average of 0.81%.

ZBH’s net sales increased 5% year-over-year to $1.75 billion in the fiscal third quarter that ended September 30, 2023. Its operating profit came in at $266.60 million, up 8.7% year-over-year. Also, net earnings of ZBH came in at $162.70 million, and net earnings per common share came to $0.77.

The consensus revenue estimate of $7.38 billion for the year ending December 2023 represents a 6.4% increase year-over-year. Its EPS is expected to grow 8.8% year-over-year to $7.50 for the same period. It surpassed EPS estimates in all four trailing quarters. ZBH’s shares have gained 6.4% over the past month to close the last trading session at $118.80.

ZBH’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which equates to a Buy in our proprietary rating system.

It is ranked 15 out of 146 stocks in the Medical - Devices & Equipment industry. It has an A grade for Growth. To see additional ZBH’s ratings for Stability, Value, Sentiment, Quality and Momentum, click here.

Fresenius SE & Co. KGaA (FSNUY)

Based in Bad Homburg vor der Höhe, Germany, FSNUY is a healthcare company that operates through segments like Fresenius Medical Care; Fresenius Kabi; Fresenius Helios; and Fresenius Vamed. It caters to patients with chronic kidney failure, critically and chronically ill patients, and healthcare facilities, offering a range of medical products and operational management services.

FSNUY’s forward EV/Sales multiple of 1.80 is 49.5% lower than the industry average of 3.56. Its forward Price/Sales multiple of 0.69% is 82.2% lower than the industry average of 3.91.

FSNUY’s trailing-12-month EBIT margin of 7.10% is 774.8% higher than the 0.81% industry average. Its trailing-12-month EBITDA margin of 11.26% is 108.5% higher than the 5.40% industry average.

In the third quarter ended September 29, 2023, FSNUY’s revenue amounted to €5.52 billion ($6.04 billion), up 2.5% year-over-year. Its operating income (EBIT) amounted to €346 million ($378.69 million). The company’s gross profit also stood at €1.27 billion ($1.39 billion).

Street expects FSNUY’ revenue to increase 4.8% year-over-year to $25.74 billion for the year ending December 2024. The stock has gained 20.5% over the past nine months to close the last trading session at $7.53.

It’s no surprise that FSNUY has an overall B rating, equating to a Buy in our POWR Ratings system. It has an A grade for Value and a B for Stability and Quality. It is ranked first among 11 stocks in the Medical - Hospitals industry.

Beyond what is stated above, we’ve also rated FSNUY for Sentiment, Growth and Momentum. Get all FSNUY ratings here.

What To Do Next?

43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.

2024 Stock Market Outlook >

MCK shares were trading at $447.75 per share on Tuesday morning, up $0.21 (+0.05%). Year-to-date, MCK has gained 20.05%, versus a 25.39% rise in the benchmark S&P 500 index during the same period.

Rashmi is passionate about capital markets, wealth management, and financial regulatory issues, which led her to pursue a career as an investment analyst. With a master's degree in commerce, she aspires to make complex financial matters understandable for individual investors and help them make appropriate investment decisions.

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