The COVID-19 pandemic spurred an urgent need for better healthcare data, and drove an expansion of the services that allow patients to receive treatment via telemedicine. But it also led to a new normal that has redefined the healthcare IT landscape, turning an urgent response into projected long-term market growth that is expected to achieve a compound annual growth rate of 29% through 2030, taking the market value from $167 billion in 2022 to over $1 trillion at the end of the period.

Advancements in network connectivity, such as 5G and its backbone infrastructure, are leading to increased spending in IT services, resulting in a revival for some top stocks that serve the healthcare IT market.

healthcare info desk attendants at computers

Image Source: Getty Images.

Since January, and for the past year, the healthcare sector is doing much better than the S&P 500 -- though both are down. 

Hewlett Packard Enterprise (HPE -1.73%), and McKesson (MCK -0.31%) are key players expected to benefit from revolutionary steps forward to integrate vast amounts of data, utilize artificial intelligence, evaluate more defined analytics, and provide faster transfer rates to improve health and medical processes.

HPE's rising star gives it an intelligent edge

First, let's clarify that HPE is not the Hewlett Packard that Warren Buffett recently added to Berkshire Hathaway's portfolio. HPE was spun out of the larger Hewlett Packard in 2015, and focuses on the hardware and cloud business for enterprise customers.

Investors were excited, and the stock price of HPE more than doubled in the first two years after the split. Then a lull in revenue and the onset of the pandemic drove HPE's price back down, erasing all of the gains. But for investors looking for a long-term play in healthcare, the window of opportunity is open once again.

Higher demand for cloud networking and increased investments in IT operations are driving higher earnings for the tech company. HPE has beaten Wall Street's estimates on earnings for four straight quarters -- most recently in the first quarter of this year, when earnings came in at $0.53 per share, 15% higher than the consensus estimate.

That double-digit percentage beat was particularly impressive because revenue was only 2% higher than it had been in the previous quarter, suggesting that the bottom line is picking up steam from the company's cost optimization plan, leading to higher margins. HPE expects continued supply constraints through 2022, offset by pricing action and a growing demand among customers for multi-cloud experiences. Based on the Q1 results, management raised its full-year earnings guidance by 3.4%.

HPE's Aruba Edge Services Platform became a more essential tool in its portfolio as company closures ramped, and hospitals became crowded with COVID patients. Doctors and non-COVID patients turned to telemedicine. Faster access to patient history and treatment results became imperative.

The Aruba Edge Services Platform can be located on-premises or accessed via the cloud, allowing companies to retrieve time-sensitive data faster by storing it near the entry point as opposed to in a data center, where requests would be processed with more time latency. 

Through HPE's GreenLake platform for healthcare technology, medical personnel and pharmaceutical companies like Lupin can run relational database software such as SAP's S/4 HANA for faster and accurate data. AI and data processing can help medical teams make faster decisions with improved accuracy, while data science teams can use results to improve the accuracy of developmental drugs.

These factors can lead to life-saving decisions. The company's Intelligent Edge segment is a rising star, producing quarterly revenue that jumped 11% from the prior-year period to contribute $901 million to the top line.

McKesson

McKesson is a healthcare technology solutions provider and a medical wholesaler distributor that connects patients, drug producers, pharmacies, and payers. As part of the company's strategy to evolve with the needs of technology in healthcare, Roy Dunbar was added to the board in April to bolster its experience in technology, operations, and healthcare.

In May, the company delivered its reports for fiscal Q4 2022 and the full fiscal year, which ended March 31. For the year, it booked earnings of $23.69 per share, of which $1.79 per share was the result of it being the central distributor of Moderna and Johnson & Johnson COVID-19 vaccines in the U.S. under a federal contract. In a testament to McKesson's ability to manage supply chains, the company had distributed 380 million COVID-19 vaccines as of March through large customers like CVS Health

In addition to distribution sales, the company is relying on its pharmacy management services and technology to help customers automate the functions that keep patients on track for their prescriptions. Its platform tracks what medications to take, why they are being prescribed -- which symptoms or health issues they treat -- how to take them, proper dosage, and a schedule to follow for taking them on time.

In the prescription technology solutions segment, fiscal Q4 revenue jumped 29% year over year to $1 billion as a result of volume growth related to biopharma services. That growth was helped along in part by the success of the company's AMP solution, which focuses on automating benefit verification and hub enrollments for patients. In 2022, the company saw increased revenue growth and a 25% increase in the number of brands on the program.

Beyond prescription management, there are also software offerings to help pharmacies manage operations. These are designed to automate and streamline processes, including handling claims and benefits, and to accurately track patient care through data hosting and centralized data storage that can be accessed across locations. 

As demand for COVID-19 vaccines decreases -- and with its federal contract set to expire in July -- the company is forecasting that its 2023 earnings will decline to a range between $22.90 per share and $23.60 per share, including  $0.20 to $0.60 from COVID-related business. However, if you remove the $1.79 per share related to vaccine distribution from 2022, the outlook actually represents projected earnings growth of 4.3% for non-vaccine-related earnings.

This should help sustain investor confidence in the company stock. Even though its shares are up 28% year-to-date, McKesson remains a smart buy for long-term investors. Based on analysts' average price target, the stock could tack on another 17% over the next year.

For as much impact as the pandemic had on the medical community, perhaps it could lead to positive results for the future of healthcare. An emphasis on expanded treatments, the role of artificial intelligence, and faster processing of data is helping achieve life-saving results. It may also yield strong returns for those who invest in healthcare IT companies for the long haul.