Ramsay Health Care Limited (ASX: RHC) is the largest private hospital operator in Australia with a market capitalisation of $13.8 billion. Now is a good time to take a closer at it look after the share price has declined by 19% since the all time high in September 2016.
Ramsay has been one of the best healthcare shares on the ASX, it's up over 496% in 10 years. I think Ramsay still has a big growth runway, here are three reasons why:
Aging tailwinds
The Australian population is steadily ageing, as the number of people over 65 will increase by 75% over the next 20 years according to the Australian Bureau of Statistics. This age bracket will likely visit the hospital the most, meaning Ramsay's hospitals will get more patients and therefore more revenue.
I think these tailwinds will continue to last for many years, making Ramsay a great long term investment.
Geographical diversification
Ramsay is the largest private hospital operator in Australia, but it also has large networks in a number of other countries. It currently has operations in the United Kingdom, France, Malaysia, Indonesia and Italy.
This can provide strength if any particular country's operations have a problem such as a government funding cut. A good example of this advantage is how Sonic Healthcare Limited's (ASX: SHL) share price held up better than Primary Health Care Limited's (ASX: PRY) during the latest Medicare funding reduction.
Growth initiatives
The key to future dividend rises and share price increases will be Ramsay continuing new growth initiatives.
Ramsay can grow further by building new hospitals in the countries it currently operates in and by expanding into other countries. Ramsay almost started a joint venture to set up in China, but this didn't end up happening. However, it is promising that it could eventuate.
It also has plans to roll out a number of large pharmacies in key locations near its hospitals in Australia, this will provide a great opportunity to 'on sell' required medication to patients.
Risks
The biggest risk to Ramsay is funding, both the government and private health insurers will want to keep costs as low as possible. Ramsay will have to be careful about balancing between patient needs, profitability and funding from various stakeholders.
Foolish takeaway
Ramsay is one of the highest quality businesses on the ASX with strong tailwinds, so I don't believe it will ever trade at a big discount. It's currently trading at 25.8x FY17's estimated earnings with a grossed up dividend yield of 2.49%.
At this price I think Ramsay is a great buy for long term investors, but if you want a cheaper stock that has a future that's just as exciting, you should look at these three blue chips.
