Ramsay Health Care Limited reaffirms guidance, is time to buy shares?

Shareholders of Ramsay Health Care Limited (ASX: RHC) can breathe a sigh of relief this morning after the private hospital operator reaffirmed its previous market guidance.

Its shares fell sharply last week after rival operator Healthscope Ltd (ASX: HSO) provided a trading update to the market which revealed that it was experiencing weakness in its hospitals segment in the first quarter of FY 2017.

Healthscope warned that if things don’t pick up as the year goes on then earnings before interest, tax, depreciation, and amortisation would likely be flat year on year.

Clearly the market was fearful that Ramsay could be experiencing weakness in its own hospitals and investors sold off its shares en masse.

But thankfully this wasn’t the case. According to this morning’s release, Ramsay’s hospitals continue to deliver admissions growth in line with its long-term trend. In light of this management advised that first quarter results are thus far meeting expectations.

For the full year Ramsay has reaffirmed its core net profit after tax and core earnings per share growth target of between 10% and 12%.

With its guidance reaffirmed it comes as no surprise to see Ramsay’s share price jump today. In early trade Ramsay’s share price is higher by over 3.5% to $75.

As I wrote earlier this week, I consider Ramsay to be a great buy and hold investment. Thanks to strong tailwinds from ageing populations, longer life expectancy, and increased chronic disease burden, I believe Ramsay is in a strong position for long-term growth.

At 28x estimated FY 2017’s earnings its shares are by no means cheap, but I believe this is one high-quality business that justifies paying a premium to own.

With its shares still trading significantly lower than where they were before Healthscope’s announcement, I think now would be a great time to make a long-term investment in the hospital giant.

If you need to make room in your portfolio for Ramsay then in my opinion a good start would be selling these rotten ASX shares. Are they in your portfolio?

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Motley Fool contributor James Mickleboro has no position in any stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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