The healthcare services sector is undergoing a major evolution driven by innovation and digital applications. The growing demand for telemedicine has led to a significant increase in digital healthcare options over the past few years. The demand for digital healthcare treatments continues to increase in the form of online medical and AI-powered technology services with a focus on telemedicine, backed by the implementation of data and analytics.
The global healthcare analytics market is expected to grow at a CAGR of 22.9% from 2024 to 2029, reaching over $130 billion by 2029, according to a recent report from Mordor Intelligence. Key stakeholders (payers, healthcare professionals, and patients) will benefit from entirely new insights. , the level of service and experience provided by next-generation healthcare data and analytics capabilities. Stocks such as Elevance Health, Inc. ELV, Doximity DOCS, and HealthEquity HQY are expected to gain the most from the rapidly changing healthcare services environment.
However, in the post-pandemic era, the shortage of manual labor in healthcare settings has become a global issue, placing a significant burden on healthcare infrastructure. By 2028, the U.S. is expected to have a shortage of more than 100,000 health care workers, according to an August 2024 report from Mercer. Among them, nursing assistants are expected to have the largest shortage compared to other medical jobs, suggesting that human resources need to be improved. Attractiveness and retention strategies for this segment. Mercer predicts there will be a shortage of more than 73,000 nursing assistants nationwide by 2028. This has resulted in increased labor and medical costs.
Industry description
The Zacks Medical Services industry is comprised of third-party service providers and caregivers appointed by core healthcare companies in pursuit of economies of scale. This industry includes pharmacy benefit managers, contract research organizations, wireless MedTech companies, third-party testing laboratories, surgical facility providers, medical workforce solutions providers, and more. Over the years, the industry has strategically moved from volume-based care to value-based care. This change in patterns of care has increased the need for sophisticated facilities and the need to appoint specialist external service providers. With the increasing importance of effective healthcare management, the healthcare services industry has become an integral part of modern healthcare systems.
Three trends shaping the future of the healthcare services industry
Digital Revolution: With the increasing adoption of digital platforms in the medical device sector, remote monitoring, robotic surgery, big data analytics, 3D printing, and electronic medical records are gaining traction in the United States. According to the 2024 Digital Health Market Report by Statista, this market is expected to grow at a CAGR of 9.2% from 2024 to 2028, reaching a market size of $275 billion by 2028. Other reports suggest that companies that adopted artificial intelligence technology witnessed a 50% reduction. Treatment costs have been significantly reduced and patient outcomes improved by more than 50%.
Revival of the Nursing Care Market: With increasing awareness of the benefits of professional medical care, the need for healthcare workers/staffing service providers has increased significantly. Despite challenges such as labor shortages and increased costs, the market is recovering post-pandemic. Factors such as the rise in chronic diseases, healthcare awareness, and strategic initiatives by businesses and governments are driving this growth. For example, the rising incidence of chronic diseases in the United States has led to a significant increase in demand for nurses, and that demand is expected to increase in the coming days. According to a report by Research and Markets, the global healthcare staffing market size is expected to reach $62.8 billion by 2030, registering a CAGR of 6.9% from 2023 to 2030.
Staff shortages: Even though the medical emergency is over (WHO declared COVID-19 a global health emergency on May 5), the trauma of the past few years of uncertainty and turmoil Front-line workers, such as doctors and medical staff, are forced to leave the field. This, combined with the rapid increase in the aging population in recent years (approximately 10,000 people between the ages of 59 and 77 are enrolled in Medicare plans every day), has made the shortage of medical staff even more pronounced. In the article “Public health crisis: Talent shortage in health care” published in Favorite Healthcare Staffing, the WHO predicts that there will be a shortage of 15 million health workers worldwide by 2030. Needless to say, this lack of supply has led to a significant increase in the number of healthcare workers. wages. According to a report by HR for Health, hospital costs are increasing due to increased labor costs and staffing challenges. Hospitals experienced a 15.6% increase in labor costs per adjusted discharge compared to pre-pandemic levels.
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Zacks Industry Rankings Indicate a Dark Outlook
The Zacks Medical Services industry falls into the broader Zacks Medical sector. It has a Zacks Industry Rank of #170, which puts it in the bottom 32% of over 250 Zacks industries.
The group's Zacks Industry Rank is essentially the average of the Zacks Rank of all its member stocks, indicating a lackluster near-term outlook. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by more than 2 to 1.
Here are some stocks that could outperform the market based on solid earnings outlooks. But it is worth checking the industry's shareholder returns and current valuation first.
Industry underperforms sector and S&P 500
The Health Services industry has underperformed its sector and the S&P 500 over the past year. Overall, stocks in this industry rose 8.9% during the period, compared to the Healthcare sector's 12.5% rise and the S&P 500's 34.3% rise.
1 year price performance
Industry current assessment
Based on the trailing 12-month price-to-earnings ratio (P/E), which is commonly used to value healthcare stocks, the Healthcare industry currently trades at 15.01x, compared to the S&P 500's 22.09x and the sector's 22.75x. will be compared.
As the chart below shows, over the past five years, the industry's trading multiple has been as high as 19.80x, as low as 11.83x, and with a median of 15.52x.
12-month forward price/earnings ratio (F12M)
12-month forward price/earnings ratio (F12M)
3 stocks to buy right now
Here are 3 stocks in the Medical Services industry with positive earnings estimate revisions and currently carrying a Zacks Rank #1 (Strong Buy) or #2 (Buy).
You can see the complete list of today's Zacks #1 Rank stocks here.
Elevance Health: Based in Indianapolis, Indiana, Elevance Health (formerly known as Anthem) is one of the largest publicly traded health insurance companies in the United States by membership. ELV's revenue growth is driven by premium rate increases and membership growth in its commercial operations, contributing to the company's positive trajectory. Strategic acquisitions and partnerships strengthened our business portfolio. A strong Medicare Advantage segment, coupled with successful contract wins, is poised to drive future membership growth.
Elevance Health's earnings growth rate in 2024 is expected to be 12.4%. The Zacks Consensus Estimate for ELV's 2024 earnings is pointing to an increase of 1.5% from the year-ago period. The stock currently sports a Zacks Rank #1.
Price and consensus: ELV
Doximity: A digital platform for U.S. healthcare professionals. The company's network members include more than 80% of U.S. physicians across all specialties and practice areas. Doximity provides verified clinical members with digital tools built for healthcare to collaborate with colleagues, stay up to date on the latest medical news and research, manage their careers and on-call schedules, and conduct virtual patient visits. is possible.
The expected earnings growth rate for this Zacks #1 Rank stock in 2025 is pegged at 10.5%. The Zacks Consensus Estimate for DOCS's fiscal 2025 earnings is pointing to an increase of 9.4% from the year-ago period.
Price and consensus: DOCS
HealthEquity: Headquartered in Draper, Utah, HealthEquity provides integrated solutions for healthcare account management, healthcare reimbursement arrangements, and flexible spending accounts for U.S. health plans, insurers, and third-party administrators. Masu. HealthEquity's continued strength in Health Savings Accounts (HSA) is promising and we expect it to maintain its leadership position in the HSA industry.
HQY's expected FY2025 earnings growth rate is pegged at 37.3%. HealthEquity's Zacks Consensus Estimate for fiscal 2025 earnings is pointing to an increase of 18.2% from the prior year. The stock currently carries a Zacks Rank #2.
Price and consensus: HQY
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