Hi Octogenarian,
Two very different stocks here on many fronts, you’re clearly casting the net far and wide:
Sonic Healthcare (ASX: SHL) – is one of the world’s largest diagnostic healthcare providers, with leading pathology operations across Australia, Europe and the US, generating approximately 50% of revenue from Europe and 25% each from the US and Australia/New Zealand, complemented by significant Australian diagnostic imaging and medical centre businesses.
Their FY26 result in August was a better-than-expected, but the outlook remains challenging, with funding cuts in Switzerland, rising UK wages and a stronger Australian dollar weighing on future earnings. Despite underlying NPAT beating expectations by 5%, FY27 EBITDA guidance points to broadly flat earnings before a potential $40–50m currency headwind, prompting EPS forecast downgrades of 7% for FY27 and 14% for FY28.
These pressures reflect persistent challenges across global pathology markets, where governments are seeking to contain healthcare costs while wage inflation remains stubbornly high. Further funding cuts in Germany represent an additional risk.
On a more positive note, restructuring of Sonic’s US operations is expected to deliver $25–30m in FY27 savings, while management is shifting its focus from acquisitions towards improving margins and returns after spending around $2bn on expansion in recent years.
That said, competitive pressures in the US remain significant, and the progressive dividend policy could keep the payout ratio above 90% in FY27, limiting scope for buybacks.
- We are neutral ~$18.50 but value is clearly emerging as the stock forms a base while its ~6% part franked yield is attractive.
Lynas Rare Earths (ASX: LYC) – rare earths were a “hot space” 6-months ago but since then LYC has fallen more than 40%. The company delivered a broadly in-line FY26 result, with EBITDA of $386ms, although NPAT of $222m fell short due largely to higher depreciation and amortisation.
Investor attention centred on rising operating costs and a somewhat underwhelming FY27 outlook, with expansion spending at Mt Weld and Kalgoorlie, alongside higher input costs, weighing on near-term margins. However, these pressures appear largely temporary as production ramps up and operations become more efficient.
- Importantly, the Mt Weld expansion is substantially complete, improvements at Kalgoorlie should support higher throughput, and the rollout of higher-value heavy rare earths remains on track.
The longer-term investment case remains firmly intact, with Lynas strategically positioned to benefit from Western efforts to establish rare-earth supply chains outside China, particularly as demand for permanent magnets accelerates across defence, EVs and advanced manufacturing.
We expect earnings momentum to strengthen from FY28 as production normalises and higher-margin heavy rare earths become an increasingly meaningful contributor – our view is that Lynas’s longer-term growth opportunity matters more than offsets one year’s earnings.
- We like LYC around $12,50, this is a volatile and high-risk stock, best accumulated into weakness.
