From novel pharmaceuticals to telemedicine, most healthcare companies are on a mission to drive better patient outcomes. Those leading the charge have not only realized strong financial performance but also propelled the broader industry’s returns as healthcare stocks have gained 10.2% over the past six months while the S&P 500 was up 7.7%.
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. Keeping that in mind, here are three healthcare stocks we’re swiping left on.
QuidelOrtho (QDEL)
Market Cap: $1.12 billion
Born from the 2022 merger of Quidel and Ortho Clinical Diagnostics, QuidelOrtho (NASDAQ: QDEL) develops and manufactures diagnostic testing solutions for healthcare providers, from rapid point-of-care tests to complex laboratory instruments and systems.
Why Do We Pass on QDEL?
- Constant currency growth was below our standards over the past two years, suggesting it might need to invest in product improvements to get back on track
- Capital intensity has ramped up over the last five years as its free cash flow margin decreased by 23 percentage points
- Waning returns on capital imply its previous profit engines are losing steam
At $17.26 per share, QuidelOrtho trades at 8.7x forward P/E. Read our free research report to see why you should think twice about including QDEL in your portfolio.
Option Care Health (OPCH)
Market Cap: $3.40 billion
With a nationwide network of 177 locations serving 43 states and a team of over 4,500 clinicians, Option Care Health (NASDAQ: OPCH) is the largest independent provider of home and alternate site infusion services, delivering medications and clinical support to patients across the United States.
Why Do We Think Twice About OPCH?
- Estimated sales growth of 2.5% for the next 12 months implies demand will slow from its two-year trend
- Expenses have increased as a percentage of revenue over the last two years as its adjusted operating margin fell by 1.1 percentage points
- Capital intensity has ramped up over the last five years as its free cash flow margin decreased by 1.7 percentage points
Option Care Health is trading at $21.46 per share, or 11.6x forward P/E. Dive into our free research report to see why there are better opportunities than OPCH.
Charles River Laboratories (CRL)
Market Cap: $10.57 billion
Named after the Massachusetts river where it was founded in 1947, Charles River Laboratories (NYSE: CRL) provides non-clinical drug development services, research models, and manufacturing support to pharmaceutical and biotechnology companies.
Why Does CRL Fall Short?
- Organic revenue growth fell short of our benchmarks over the past two years and implies it may need to improve its products, pricing, or go-to-market strategy
- Forecasted revenue decline of 4.8% for the upcoming 12 months implies demand will fall even further
- Eroding returns on capital from an already low base indicate that management’s recent investments are destroying value
Charles River Laboratories’s stock price of $220.55 implies a valuation ratio of 18.7x forward P/E. To fully understand why you should be careful with CRL, check out our full research report (it’s free).
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