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5 reasons to buy Ramsay Health Care Limited

Ramsay Health Care Limited (ASX:RHC) is Australia’s largest private hospital operator and owns the best portfolio of private hospitals in Australia. Here are five reasons to buy Ramsay Health Care and hold it for the long term.

1) Ramsay’s significant size and dominant position gives the company strong negotiating power over private health insurance funds. If an insurance company is not prepared to pay the rate demanded by Ramsay, the insurance fund customers miss out on accessing the best private hospitals in Australia and therefore the fund has limited bargaining power.

2) The company’s size and scale generates operating savings which provide Ramsay with a substantial cost advantage over its smaller competitors.

3) A dramatically ageing and wealthy population will result in surging demand for medical services over the next decade, and in particular private hospital treatment. The quality and location of Ramsay’s hospitals will see the company be a major beneficiary of this trend.

4) The private health industry continues to gain strong government support, as increasing pressure on the public healthcare system has resulted in the government supporting a greater role for the private sector.

5) Strong cash flow from the Australian business is enabling the company to expand offshore. Ramsay’s experienced management team and scale should see the company implement its successful business model in suitable overseas markets. The private hospital operator has been acquiring hospitals and medical facilities both domestically and internationally in Europe and South East Asia.

Ramsay Health Care is a quality company that should grow earnings at a strong rate for a long time. Ramsay currently trades on a price earnings ratio of 34 times. While this is certainly not cheap, long-term investors may be well rewarded.

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Motley Fool contributor Bradley Murphy does not own shares in any company mentioned in this article.

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