HLS has now corrected over 30% from its late December high after falling another -4.5% yesterday following Credit Suisse cutting the health care business to neutral albeit with a price target of $4.65. In late February the business delivered a strong half-year result although the likelihood moving forward is the tailwind demand for PCR testing will fall away – we hope so! However, we anticipate HLS will enjoy an acceleration in routine services as we see a return of elective surgery although the board gave no guidance for FY22 showing their heightened level of uncertainty.
The markets rewarding earnings momentum and crucifying those companies that don’t deliver and we feel HLS is struggling due to a lack of guidance plus after the recent takeover of Ramsay Healthcare (RHC) by KKR it’s probably being discounted that someone will have another tilt at HLS. Looking at a simple P/E for FY22 the stock is cheap trading on just 6.45x and a yield of 6% however that number is heavily impacted by short term factors and the earnings in FY23 and beyond are expected to decline materially. Also worth noting that Jangho still owns 17.1% of HLS .
MM is neutral HLS around $4
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