3 reasons why Primary Health Care Limited is being overlooked by investors

With the stock trading at a 52-week low, now might be a buying opportunity.

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It was an unpleasant day for shareholders in Primary Health Care Limited (ASX: PRY) in the wake of the Federal Budget's move to implement a $7 contribution to bulk-billed standard GP consultations and out-of-hospital pathology and imaging services.

The day after the official announcement Primary's share price fell 5% but it wasn't alone –peers  Sonic Healthcare Limited (ASX: SHL) and Capitol Health Ltd (ASX: CAJ) fell 4.3% and 9.6% respectively too.

It's debatable how much the $7 contribution will actually affect patient demand for services and in the case of Primary the selloff means the stock is now trading at a 52-week low and arguably there is value at current levels.

Here are 3 reasons why investors could be missing a buying opportunity:

1)      Solid, growing earnings base. People need health care and Primary is a major service provider. The group earned 28.7 cents per share (cps) in 2009. After a few years in which the company struggled with declining earnings, in 2013 Primary bounced back to post earnings per share (EPS) of 29.9 cents.

The interim results for 2014 showed EPS of 15 cps and at the time management commented that they expected full year EPS to grow between 7% and 13%.This suggests the medical centre operator, diagnostics imaging services and pathology provider will earn at least 32 cps this financial year.

2)      Defensive fully franked dividend yield. With a 9 cps interim dividend already paid, shareholders can expect at least a full year dividend of 18 cents which would represent a rise of 0.5 cents on the prior year. At current prices this equates to a yield of 3.9%.

3)      Appealing valuation. Based on a forecast EPS of 32 cents with the share price currently near its lows at $4.53, the stock is trading on a price-to-earnings ratio of 14.1. In comparison, the S&P/ASX 200 Index (Index: ^AXJO) (ASX: XJO) is trading on a forward multiple of 14.7.

Motley Fool contributor Tim McArthur owns shares in Primary Health Care Ltd.

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