The Healthscope Ltd (ASX: HSO) share price could make a big recovery when it reports later today.
Healthscope is Australia's second-largest private hospital operator with a market capitalisation of $3.9 billion. A few months ago it announced that patient numbers hadn't grown in the September 2016 quarter, this caused the share price to drop by 26% from $2.93 to $2.16.
This selloff can be partially justified, if patient numbers aren't increasing then neither will the revenue or profit. However, over the long-term I think Healthscope has a great future and there will be more patient numbers over the coming years.
Here are three reasons why you should consider Healthscope:
Defensive earnings
Patients don't become ill or require surgery relative to the economy's booms and busts. Hospitals get a fairly consistent level of activity all year round, which can provide shareholders with a reliable flow of profits and dividends.
There is support for Healthscope's earnings in the form of government assistance and private health insurance too from the likes of Medibank Private Ltd (ASX: MPL) and NIB Holdings Limited (ASX: NHF).
Ageing Australian population
The Australian population is steadily ageing thanks to a large baby boomer cohort that is entering retirement. It's a sad reality that the older you get, the more likely you'll need medical assistance or some form of surgery.
This is a large, long-term tailwind for Healthscope that should see patient numbers grow over the next decade. The September 2016 quarter may not have seen any growth, but it's almost certain there will be growth in the long-term.
Increasing unaffordability of the public health system
Australians can be proud of the level of medical care that is provided by the public health system. However, with the federal budget starting to struggle, governments of either political party will find it difficult to fund the system as much as it is funded today.
It's likely that more patients will be encouraged onto the private system with both 'carrot' and 'stick' measures.
So, not only will the overall health expenditure increase over time, it's likely that the private health system will take up more of the slack.
Time to buy?
I think now is a good time to buy Healthscope shares between $2.20 to $2.30. It should be a good long-term investment for investors to hold for the next decade.
Healthscope is trading at 20x FY17's estimated earnings with a dividend yield of 3.3%, which will look even better once the dividend starts being fully franked. However, if you want a good stock with a big dividend now, then you should read this report on our number one dividend pick for 2017.
