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3 Healthcare Stocks Still Raising Expectations

By Cory Renauer – Updated Apr 18, 2019 at 10:02PM

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If you're worried about recent guidance revisions downward, here are three top stocks from the healthcare sector that recently raised their outlook.

We're hardly in a recession, but Apple recently made heads explode by lowering sales expectations for the first time in 16 years. Samsung followed suit -- and smartphone sales aren't the only sign of trouble. American Airlines stock dove after a recent guidance revision downward, and FedEx warned of lower profits in 2019 due to slowing global trade in recent months.

Most forms of healthcare spending remain incredibly resilient, regardless of what the overall economy does. These three companies come from different corners of the sector and they all raised their forward outlook recently. Here's why business could keep on getting better for these companies, regardless of a global slowdown.

Company (Symbol) Industry Market Cap 12-Month Stock Price Gain (Loss)
Exact Sciences (EXAS -1.02%) Diagnostics $9.1 billion 41.1%
Masimo (MASI 1.28%) Medical devices $14.1 billion 30.4%
Veeva Systems (VEEV -1.28%) Cloud services $5.9 billion 67.3%

Data source: Yahoo! Finance.

Exact Sciences: The right combination

Check out the latest Exact Sciences earnings call transcript.

Exact Sciences markets the Cologuard cancer test, and sales have soared thanks to a spot on the list of regular preventive services insurers are required to pay for. The company launched a marketing partnership with Pfizer that started in early October, and by the end of the month, Exact Sciences raised expectations for total 2018 revenue from at least $420 million to at least $435 million. 

At this year's annual J.P. Morgan Healthcare Conference, investors were thrilled to hear revenue blew way past expectations with between $454 million and $455 million in total revenue last year. The company completed 292,000 tests during the fourth quarter, which was 20% more than during the third quarter.

Thanks to the Affordable Care Act, insurance companies can't pass preventive care expenses on to patients. There are around 85 million Americans who can get someone else to pay for a $500 Cologuard screening every three years, even during a recession. That means Exact Sciences can probably continue growing revenue at a blistering pace in the years to come.

Doctor showing a patient something on a fancy tablet screen.

Image source: Getty Images.

Masimo: Noninvasive monitoring

Check out the latest Masimo earnings call transcript.

Hospitals that know how much oxygen is flowing through their patients' blood vessels at all times have far fewer problems than ones that don't. Masimo has become the go-to provider of noninvasive monitoring products, and not just for healthcare providers.

Original equipment manufacturers (OEM) also pay Masimo to integrate its technology into their own. One of them, Philips, sells around 50% of the big high-acuity monitors you see next to more and more patient beds around the globe. Philips started putting Masimo gear in its products in mid-2017, and in 2018, third-quarter OEM sales rose 28.5% compared with the previous-year period.

Masimo's monitoring technology is becoming a global standard, which is why the company was able to raise its forward sales estimates three times in 2018. More recently, the company shared preliminary fourth-quarter revenue figures that beat expectations announced in October.

Masimo shareholders don't have to worry too much about economic downturns because the company provides monitoring equipment for free, as long as healthcare providers sign a long-term sensor purchase commitment. Since those expenses are passed on to patients and their insurers, it's an easy decision for administrators with tight budgets.

An inbox with a huge stack of files in it next to an empty out box.

Image source: Getty Images.

Veeva Systems: A service that life science can no longer live without

Check out the latest Veeva Systems earnings call transcript.

Veeva Systems is the leading provider of cloud-based software solutions for the life science industry, which has a lot of specific needs when it comes to storing and managing data. In the days before electronic filings, new drug applications would fill a small office with paper from floor to ceiling, and it isn't getting easier.

In November, Veeva raised its total revenue outlook for its fiscal year that ends on Jan. 31, 2019, to between $856 million and $857 million. A few months earlier the company had predicted between $840 million and $843 million for the year.

Biopharmaceutical companies and contract research organizations that collect a lot of their data really don't have another viable option, and Veeva's starting to look like a company that sits on top of a niche it created.

VEEV Revenue (Quarterly) Chart

VEEV Revenue (Quarterly) data by YCharts.

Revenue at Veeva Systems has outpaced operating expenses over the past few years, and the trend's accelerating. That's partly because existing clients are adopting more services, which drives subscription revenue higher without as much effort as signing up new clients.

It probably won't be long before there isn't a drugmaker left that can remember how to function without Veeva's services. That gives this stock a chance to continue climbing through any market downturn.

In the numbers

Unfortunately, I'm not the first person to notice these healthcare stocks, and at recent prices, they aren't exactly cheap. Masimo trades at 7.3 times trailing sales, and 36.4 times forward earnings estimates. Veeva's priced for even stronger growth at 18.6 times trailing sales and 61.6 times earnings estimates.

Exact Sciences is on pace to process a million tests this year, but it isn't earning a profit yet. At 22.4 times trailing sales, though, investors are expecting its bottom line to explode in the years ahead. With a lead in their respective corners of the healthcare field, though, there's a good chance all three of these companies will produce market-beating returns over the long run. 

Cory Renauer has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Apple, FedEx, Masimo, and Veeva Systems. The Motley Fool has the following options: long January 2020 $150 calls on Apple and short January 2020 $155 calls on Apple. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Exact Sciences Stock Quote
Exact Sciences
$42.65 (-1.02%) $0.44
Masimo Stock Quote
$144.85 (1.28%) $1.83
Veeva Systems Stock Quote
Veeva Systems
$185.66 (-1.28%) $-2.40

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