Headline Risks Affecting Healthcare Tech & Distribution Sector Will Likely Continue in 2025: BofA Analyst

BofA Securities predicts that headline risks affecting the Healthcare Tech & Distribution sector in 2024 will likely continue in 2025.

Key areas of concern include pharmacy benefit managers (PBMs), retail pharmacies, distributors, fertility benefits, and direct-to-consumer (D2C) pharmacies.

While regulatory pressure on PBMs is expected to persist, the analyst believes this will mainly impact profit margins and growth rates rather than lead to major changes in the business model.

Potential policy shifts under the next administration could involve adjustments to the Inflation Reduction Act, expanded access to health savings accounts (HSAs), and increased support for fertility benefits.

BofA upgraded Cardinal Health Inc. CAH from Neutral to Buy. The analyst notes Cardinal Health’s core pharmaceutical segment is growing faster than its competitors, with this trend expected to strengthen in the coming year.

Also Raed: Cardinal Health Raises 2025 Profit Outlook Again, Helped By Strong Drug Distribution Business

The company is benefiting from a unique advantage in its pharmacy benefit management (PBM) business, which could add 2-3 percentage points to earnings per share growth through fiscal 2026.

Despite its stronger growth potential, Cardinal’s stock is trading at a notable discount compared to McKesson Corporation MCK, but this gap is likely to close or reverse within the next year.

BofA has also upgraded Henry Schein HSIC from Underperform to Buy and raised the price target from $69 to $84, recognizing it as a top-tier dental business poised for long-term earnings growth.

The company is recovering from last year’s cybersecurity incident, which should boost reported figures.

With these challenges behind it and expectations now more realistic, the analyst writes Henry Schein offers a strong opportunity to benefit from a recovering dental market.

The company could see additional upside in the medium to long term, driven by a shift toward private-label products and a growing focus on specialty services. The analyst notes the price target of $84 is reasonable given its position at a market low.

Price Action: At the last check Tuesday, CAH stock was up 0.61% at $120.36, and HSIC stock was down 0.08% at $71.70.

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