Drilling Down on Henry Schein

This column is part of the sixth annual Heard on the Street stock-picking contest

If you are one of those people who has skipped getting your teeth cleaned during the pandemic, the reminder card from your dentist that you ignored might have come from

Henry Schein.

HSIC -1.54%

Henry Schein Inc.

  • Recommendation: Buy
  • Price: $74.65

If you did go, the tools the hygienist used, the plastic cup you reached for when told to rinse, and the loupe the dentist used to peer into your mouth all might have come from Henry Schein, too. The Long Island, N.Y.-based distributor counts 90% of U.S. dental practices as its customers, and says that it accounts for between 35% and 40% of the North American market for dental supplies. Its dental business also has a significant presence in Europe, Australia and New Zealand. Its smaller, but still substantial, medical-supply business draws orders from an estimated 60% of U.S. physician practices.

The pandemic has been bad for dentists’ business, and for many, business isn’t back to normal. Some patients are still resisting going to the dentist because of Covid-19 concerns, and many more probably just got out of the habit. Each wave of infection has led to staffing problems and canceled appointments. Inflation-adjusted spending on dental services in June was 11% below its February 2020 level, according to the Commerce Department.

The pandemic hasn’t been very good for Henry Schein’s stock, either. At $74.65 it is just a bit above its February 2020 closing high, and trades at about 15 times expected earnings, which is about as cheap as it has gotten over the past decade. The S&P 500 has risen about 22% over the same period.

But in the months ahead, Henry Schein shares could sparkle even if worries over the economy continue to beset the overall market. As Covid-19 concerns keep fading, more people will start regularly visiting the dentist again, with some unfortunately (for them) requiring extra dental work. Dentists themselves are feeling optimistic: In a July survey conducted by the American Dental Association, 61% of respondents said they were either very or somewhat confident in the recovery of their dental practices. The share who were confident in the recovery of the economy was a much lower 17%.

Dentists’ optimism is showing up at Henry Schein. Early this month, the company said that overall sales rose by just 2.1% in the second quarter from a year earlier, but much of that can be chalked up to a decline in sales of low-margin personal protection equipment—particularly gloves, the prices of which shot up in the early stages of the pandemic through the second quarter of last year, and have since declined. North American sales of dental equipment, which includes traditional items, such as dentist chairs, and higher tech offerings, such as intraoral scanners, was up by 8.1% in the second quarter from a year earlier. The company also said that its backlog of equipment orders continues to grow—an indication that dentists are putting money in their practices.

Most people don’t particularly like going to the dentist. For those who have been putting it off, an investment in Henry Schein could help numb the pain.

Write to Justin Lahart at Justin.Lahart@wsj.com

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