5 Healthcare Stocks With Healthy Long-Term Debt Ratios And Hearty Profitability

Includes: DRRX, MD, MDT, VAR, YDNT
by: ZetaKap

We are constantly receiving new information on what researchers and experts recommend for optimal health. Even for people who prioritize their health, it can be difficult to follow and keep up with the latest guidelines and regimens. To add to the complication, we know that everyone is different. What works for some has no effect on others. That is why it can be viewed as a positive that there are numerous healthcare companies working on new treatments and devices. When it comes to selecting investments in the healthcare industry, regardless of the niche, it is imperative that the companies have sound profitability and have not compromised their longevity by over-borrowing. With this in mind, we developed a list of companies with strong earnings and little-to-zero long-term debt. These dual assets work together to point to companies that have a handle on both the bottom line as well as the big picture. Take a look at the list of healthcare stocks below to begin your own analysis.

The Long-Term Debt/Equity Ratio is a variation of the traditional debt-to-equity ratio. This value computes the proportion of a company's long-term debt compared to its available capital. By using this ratio, investors can identify the amount of leverage utilized by a specific company and compare it to others to help analyze the company's risk exposure. Generally, companies that finance a greater portion of their capital via debt are considered riskier than those with lower leverage ratios.

Return on Assets [ROA] illustrates how much a company is generating in earnings from its assets alone. This metric gives investors a picture of how profitable the company is relative to the assets in current possession. As well, it lets investors see how efficient and effective management is at generating earnings from the company's assets. While most management teams can probably make money by throwing money at an issue, very few can make very large profits with little investment.

The Operating Profit Margin is a profitability ratio that measures the effectiveness of the company's operating efficiency. This metric allows investors to see how much profit is left after all variable costs are covered. If the company's margin is increasing over time this means that it's earning more per dollar of sales. Finding trends in the Operating Profit Margin helps investors identify companies that are improving profitability over time and managing the economic landscape better than competitors.

We first looked for healthcare stocks. We then looked for businesses that have maintained a sound long-term capital structure (Long-Term D/E Ratio<.1). Next, we then screened for businesses that have strong profitability relative to their asset base (ROA [TTM]>10%)(1-year operating margin>15%). We did not screen out any market caps.

Do you think these stocks are undervalued? Use our list along with your own analysis.

1) China Kanghui Holdings (KH)

Sector Healthcare
Industry Medical Appliances & Equipment
Market Cap $713.90M
Beta -

KH stock chart

Key Metrics

Long-Term Debt/Equity Ratio 0.00
Return on Assets 10.87%
Operating Profit Margin 39.44%
Short Interest 8.78%

China Kanghui Holdings, through its subsidiaries, engages in the development, manufacture, and sale of orthopedic implants and associated instruments for trauma, spine, cranial maxillofacial, and craniocerebral. China Kanghui Holdings was founded in 1997 and is headquartered in Changzhou, the People's Republic of China.

2) DURECT Corporation (NASDAQ:DRRX)

Sector Healthcare
Industry Drug Manufacturers - Other
Market Cap $129.74M
Beta 1.23

DRRX stock chart

Key Metrics

Long-Term Debt/Equity Ratio 0.00
Return on Assets 40.89%
Operating Profit Margin 30.59%
Short Interest 0.28%

DURECT Corporation, a specialty pharmaceutical company, develops pharmaceutical systems technologies based on its proprietary drug delivery technology platforms. It focuses on the development of products for the treatment of various chronic and episodic disease areas, such as pain, central nervous system disorders, cardiovascular disease, and other chronic diseases. The company was founded in 1998 and is headquartered in Cupertino, California.


Sector Healthcare
Industry Specialized Health Services
Market Cap $3.57B
Beta 0.99

MD stock chart

Key Metrics

Long-Term Debt/Equity Ratio 0.00
Return on Assets 10.20%
Operating Profit Margin 21.71%
Short Interest 11.92%

MEDNAX, Inc., together with its subsidiaries, provides neonatal, maternal-fetal, other pediatric subspecialties, and anesthesia physician services in the United States and Puerto Rico. It offers neonatal care services, including clinical care to babies born prematurely or with complications within specific units at hospitals through neonatal physician subspecialists, neonatal nurse practitioners, and other pediatric clinicians. MEDNAX, Inc. was founded in 1979 and is based in Sunrise, Florida.

4) Varian Medical Systems Inc. (NYSE:VAR)

Sector Healthcare
Industry Medical Appliances & Equipment
Market Cap $6.45B
Beta 0.86

VAR stock chart

Key Metrics

Long-Term Debt/Equity Ratio 0.00
Return on Assets 15.95%
Operating Profit Margin 21.16%
Short Interest 6.87%

Varian Medical Systems, Inc. designs, manufactures, sells, and services equipment and software products for treating cancer with radiotherapy, stereotactic radiotherapy, stereotactic body radiotherapy, stereotactic radiosurgery, and brachytherapy worldwide. Its Oncology Systems segment offers products, such as linear accelerators, brachytherapy afterloaders, treatment simulation and verification equipment, and accessories; and information management, treatment planning, and image processing software. The company was formerly known as Varian Associates, Inc. and changed its name to Varian Medical Systems, Inc. in April 1999. Varian Medical Systems, Inc. was founded in 1948 and is headquartered in Palo Alto, California.

5) Young Innovations Inc. (NASDAQ:YDNT)

Sector Healthcare
Industry Medical Instruments & Supplies
Market Cap $298.32M
Beta 0.54

YDNT stock chart

Key Metrics

Long-Term Debt/Equity Ratio 0.00
Return on Assets 10.36%
Operating Profit Margin 23.24%
Short Interest 2.49%

Young Innovations, Inc., together with its subsidiaries, engages in the development, manufacture, and marketing of supplies and equipment used by dentists, dental hygienists, dental assistants, and consumers in the United States, Canada, Europe, South America, Central America, and the Pacific Rim. Young Innovations, Inc. was founded in 1995 and is headquartered in Earth City, Missouri.

*Company profiles were sourced from Google Finance and Yahoo Finance. Financial data was sourced from Finviz on 10/11/2012.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Business relationship disclosure: This article was prepared for ZetaKap Media by one of our full-time analysts. We did not receive compensation for this article (other than from Seeking Alpha), and we have no business relationship with any company whose stock is mentioned in this article.