Among all stocks trading on the New York Stock Exchange and Nasdaq, two medical companies, Intuitive Surgical Inc. (ISRG, Financial) and Anika Therapeutics Inc. (ANIK, Financial), have relatively strong Altman Z-scores.
These two medical companies also have high financial strength, implying strong business operation. Although Intuitive Surgical, a company that trades on the Standard & Poor’s 500 index, has a higher Altman Z-score than does Anika Therapeutics, NYSE and Nasdaq medical companies generally have higher Altman Z-scores than S&P 500 medical companies.
A short recap on Altman Z-scores and Part 1 of the study
As mentioned in Part 1 of the study, the Altman Z-score measures the stability of a company based on its balance sheet. While it can range from negative infinity to positive infinity, the Z-score determines a company’s distress level based on Altman’s loosely defined “zones of discrimination.”
The distribution of Altman Z-scores for S&P 500 medical companies is moderately right-skewed with a mean of 4.33 and a standard deviation of 4.22. Even though 92.45% of the companies have a Z-score between 0 and 7, more than two-thirds of them have strong scores. Including Intuitive Surgical, only four S&P 500 medical companies have almost no distress.
NYSE and Nasdaq medical companies have wider Altman Z-scores
For S&P 500 medical companies, the Altman Z-scores range from -0.03 to 29.21. The range of Altman Z-scores for NYSE and Nasdaq companies is significantly larger: the minimum Z-score is -339.88 and the maximum Z-score is 129.2. Due to the wide range of Altman Z-scores, this study only considers the companies whose Z-score is between -4.00 and 30.00.
Although it is less skewed to the right, the distribution of Altman Z-scores for all NYSE and Nasdaq companies has a higher standard deviation, likely due to the wider range of scores. Despite this, the mean Z-score for all NYSE and Nasdaq medical companies is greater than the mean Z-score for S&P 500 medical companies. One likely reason for the higher mean Z-score is that over one-fifth of NYSE and Nasdaq medical companies have Altman Z-scores of at least 8.
In addition to having high Altman Z scores, both Intuitive Surgical and Anika Therapeutics have a Piotroski F-score of 8, suggesting that the medical companies have a sustainable business, which usually leads to high profitability and growth.
Medical device company Intuitive Surgical currently has a financial strength rating of 9 and a profitability rank of 8. With no debt and a return on invested capital of 24.46%, Intuitive Surgical creates value as the company grows. While the operating margin sharply contracted during 2014, Intuitive Surgical’s operating margin has generally expanded throughout the past 10 years and currently outperforms 98% of global medical devices companies. Additionally, the da Vinci Surgical Systems firm has a relatively high ROE, ROA and Greenblatt return on capital.
Biotech company Anika Therapeutics currently has the maximum financial strength rating of 10, likely due to a higher equity to asset ratio and return on invested capital. Unlike Intuitive Surgical, Anika experienced expanding operating margins since 2009 and seldom had a sharp decline in margins. Additionally, the therapeutic company has positive 3-year EBITDA and EPS growth.
Conclusions and see also
As the company’s financials strengthen, at least four gurus made trades in Anika Therapeutics during the first half of 2016. Jim Simons (Trades, Portfolio), who owns 300,400 shares as of March 31, increased his position in Anika by 165.84%. After initially purchasing 14,214 shares during the last quarter of 2015, Ken Fisher (Trades, Portfolio) added 57,719 shares of Anika during the first quarter of 2016.
For more information about Altman Z-scores, you can read columnist The Science of Hitting’s article. Additionally, you can explore the All-in-one Guru Screener, which allows you to search for stocks that meet the selected criteria. One of the predefined screeners, the Walter Schloss Cheap Stock screen, contains the Z-score as one of the filters.
Disclosure: The author does not own any of the stocks listed in the article.
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