Henry Schein (HSIC)

Dental and medical products company Henry Schein (NASDAQ:HSIC) reported Q3 CY2025 results exceeding the market’s revenue expectations, with sales up 5.2% year on year to $3.34 billion. Its GAAP profit of $0.84 per share was 16.9% below analysts’ consensus estimates.

Company Overview

With a vast inventory of over 300,000 products stocked in distribution centers spanning more than 5.3 million square feet worldwide, Henry Schein (NASDAQ:HSIC) is a global distributor of healthcare products and services primarily to dental practices, medical offices, and other healthcare facilities.

The dental equipment and technology industry encompasses companies that manufacture orthodontic products, dental implants, imaging systems, and digital tools for dental professionals. These companies benefit from recurring revenue streams tied to consumables, ongoing maintenance, and growing demand for aesthetic and restorative dentistry. However, high R&D costs, significant capital investment requirements, and reliance on discretionary spending make them vulnerable to economic cycles. Over the next few years, tailwinds for the sector include innovation in digital workflows, such as 3D printing and AI-driven diagnostics, which enhance the efficiency and precision of dental care. However, headwinds include economic uncertainty, which could reduce patient spending on elective procedures, regulatory challenges, and potential pricing pressures from consolidated dental service organizations (DSOs).

Henry Schein's primary competitors in the dental market include Patterson Companies (NASDAQ:PDCO) and Benco Dental Supply Company, while in the medical market, it competes with McKesson Corporation (NYSE:MCK) and Medline Industries. In the healthcare software space, competitors include Carestream Dental, CareStack, and Curve Dental.

Larger companies benefit from economies of scale, where fixed costs like infrastructure, technology, and administration are spread over a higher volume of goods or services, reducing the cost per unit. Scale can also lead to bargaining power with suppliers, greater brand recognition, and more investment firepower. A virtuous cycle can ensue if a scaled company plays its cards right.

With $12.94 billion in revenue over the past 12 months, Henry Schein has decent scale. This is important as it gives the company more leverage in a heavily regulated, competitive environment that is complex and resource-intensive.

Reviewing a company’s long-term sales performance reveals insights into its quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Unfortunately, Henry Schein’s 6.1% annualized revenue growth over the last five years was mediocre. This fell short of our benchmark for the healthcare sector and is a poor baseline for our analysis.

Long-term growth is the most important, but within healthcare, a half-decade historical view may miss new innovations or demand cycles. Henry Schein’s recent performance shows its demand has slowed as its revenue was flat over the last two years.

We can dig further into the company’s sales dynamics by analyzing its organic revenue, which strips out one-time events like acquisitions and currency fluctuations that don’t accurately reflect its fundamentals. Over the last two years, Henry Schein’s organic revenue was flat. Because this number is lower than its two-year revenue growth, we can see that some mixture of acquisitions and foreign exchange rates boosted its headline results.

This quarter, Henry Schein reported year-on-year revenue growth of 5.2%, and its $3.34 billion of revenue exceeded Wall Street’s estimates by 1.9%.

Looking ahead, sell-side analysts expect revenue to grow 3.2% over the next 12 months. Although this projection implies its newer products and services will spur better top-line performance, it is still below the sector average.

Operating margin is one of the best measures of profitability because it tells us how much money a company takes home after subtracting all core expenses, like marketing and R&D.

Henry Schein was profitable over the last five years but held back by its large cost base. Its average operating margin of 5.6% was weak for a healthcare business.

Analyzing the trend in its profitability, Henry Schein’s operating margin decreased by 1.8 percentage points over the last five years. This raises questions about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability. Henry Schein’s performance was poor no matter how you look at it - it shows that costs were rising and it couldn’t pass them onto its customers.

In Q3, Henry Schein generated an operating margin profit margin of 4.9%, in line with the same quarter last year. This indicates the company’s overall cost structure has been relatively stable.

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

Sadly for Henry Schein, its EPS declined by 4.9% annually over the last five years while its revenue grew by 6.1%. This tells us the company became less profitable on a per-share basis as it expanded due to non-fundamental factors such as interest expenses and taxes.

We can take a deeper look into Henry Schein’s earnings to better understand the drivers of its performance. As we mentioned earlier, Henry Schein’s operating margin was flat this quarter but declined by 1.8 percentage points over the last five years. This was the most relevant factor (aside from the revenue impact) behind its lower earnings; interest expenses and taxes can also affect EPS but don’t tell us as much about a company’s fundamentals.

In Q3, Henry Schein reported EPS of $0.84, up from $0.78 in the same quarter last year. Despite growing year on year, this print missed analysts’ estimates. Over the next 12 months, Wall Street expects Henry Schein’s full-year EPS of $3.17 to grow 28.5%.

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

Henry Schein has shown mediocre cash profitability over the last five years, giving the company limited opportunities to return capital to shareholders. Its free cash flow margin averaged 4.4%, subpar for a healthcare business.

Taking a step back, we can see that Henry Schein’s margin dropped by 2.8 percentage points during that time. This along with its unexciting margin put the company in a tough spot, and shareholders are likely hoping it can reverse course. If the trend continues, it could signal it’s in the middle of an investment cycle.

Henry Schein’s free cash flow clocked in at $141 million in Q3, equivalent to a 4.2% margin. This cash profitability was in line with the comparable period last year and its five-year average.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

Henry Schein’s management team makes decent investment decisions and generates value for shareholders. Its five-year average ROIC was 10.8%, slightly better than typical healthcare business.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Over the last few years, Henry Schein’s ROIC has unfortunately decreased. We like what management has done in the past, but its declining returns are perhaps a symptom of fewer profitable growth opportunities.

Henry Schein reported $136 million of cash and $3.10 billion of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $1.08 billion of EBITDA over the last 12 months, we view Henry Schein’s 2.7× net-debt-to-EBITDA ratio as safe. We also see its $58 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

It was encouraging to see Henry Schein beat analysts’ revenue expectations this quarter. We were also happy its organic revenue narrowly outperformed Wall Street’s estimates. On the other hand, its EPS missed. Overall, this was a weaker quarter. The stock traded up 6.8% to $69 immediately after reporting.

Updated: December 4, 2025 at 10:43 PM EST

Are you wondering whether to buy Henry Schein or pass? We urge investors to not only consider the latest earnings results but also longer-term business quality and valuation as well.

Henry Schein isn’t a terrible business, but it doesn’t pass our quality test. To kick things off, its revenue growth was mediocre over the last five years, and analysts expect its demand to deteriorate over the next 12 months. And while its remarkable EPS growth over the last five years shows its profits are trickling down to shareholders, the downside is its diminishing returns show management's prior bets haven't worked out. On top of that, its flat organic revenue disappointed.

Henry Schein’s P/E ratio based on the next 12 months is 14.1x. This valuation multiple is fair, but we don’t have much faith in the company. We're pretty confident there are superior stocks to buy right now.

Wall Street analysts have a consensus one-year price target of $77 on the company (compared to the current share price of $73.12).