Thoughts on Sonic Healthcare (SHL) as the sector flounders
Hello, Thanks for your update on healthcare stocks in this mornings email. Could you also please give your current thoughts on Sonic? Thanks Libby
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Answer
Hi Libby,
SHL has outperformed the healthcare sector in 2023 although its only up +0.5% year-to-date but compared to the likes of CSL and ResMed that’s a big win. However SHL shares have fallen ~20% over the last 4-months as its joined in the sector decline.
They delivered a 6% profit miss at FY23 earnings, driven by rising labour costs. We believe the shares are currently trading at reasonable value ($30) with labour costs an issue for the business moving forward as they are likely to be the hardest thing to trim in a meaningful manner given the nature of the pathology business.
Moving forward a better revenue collection system in the US reduces claims denials and will be launched in 2H24, extra revenue from this drops directly to the bottom line. With further Covid cost-out this reshapes the earnings trajectory suggesting that FY23 is a likely trough, and we see high single digit growth from here.
Hence, we like SHL into weakness.
