The Ramsay Health Care Limited (ASX: RHC) share price is down from its 52-week high of $83.66 to today's $72.29. I think this presents a good opportunity for long-term focused investors.
Ramsay Health Care is the largest private hospital operator in Australia and one of the largest in the world.
Here are three reasons why I think you should add it to your portfolio:
Defensive earnings
Healthcare is one of the best industries simply because of how defensive it is. People don't choose to get sick or to need operations, illness doesn't match economic cycles. There is a fairly consistent pattern throughout the months and years of people needing to use a hospital.
In-fact, the more new treatments that are developed the more potential reasons it gives patients to visit one of Ramsay's hospitals.
Ramsay has generated growth year after year for a very long time. That's why it has managed to increase its dividend every year since 2000 with a low dividend payout ratio of 50%.
Ageing demographics
Ramsay is predicted to generate higher profits in the coming years because of the ageing demographics in all of the countries it operates in.
The demographic most likely to need a hospital visit are retirees and that group is expected to grow by 75% over the next 20 years.
The baby boomer generation is just starting to reach retirement age and a lot of them will want to stay at a hospital with better amenities and perhaps better health outcomes.
Expansion plans
Ramsay has been growing its hospital footprint every year as more buildings and renovations are completed.
It has large operations in Australia, France and the UK. It also operates in Malaysia, Italy and Indonesia. Not too long ago it was trying to expand into China, I expect it will be looking to expand into other countries over the coming years which would boost growth significantly.
Risks
Ramsay will need to work with patients, the Government and private health insurers like Medibank Private Ltd (ASX: MPL) to make sure that the private health system can continue functioning. If people don't have private health insurance then they are unlikely to visit a private hospital.
All of the expansion actions have increased Ramsay's debt. Its debt is manageable but rising interest rates could make things tricky if Ramsay wants to expand using more funds than it organically generates each year.
Foolish takeaway
Ramsay is currently trading at 25x FY18's estimated earnings with a grossed-up dividend yield of 2.47%. I think this is a pretty good price for a long-term investor, but I'd prefer to buy shares under $70.
