I think it's worth considering if Ramsay Health Care Limited (ASX: RHC) is a buy after its share price declined to $65.
Reporting season is over and we now get to pick over the results to see if any market reaction has created a bargain.
Ramsay is the largest private hospital operator in Australia, it also has large operations in France and the UK. Here's why I think it's worth a buy now:
Better value
Ramsay may still be trading around $65 but it's now trading with a lower price/earnings ratio because its FY17 results are known.
It reported statutory earnings per share (EPS) of 234.9 cents, meaning it's trading at 28x FY17's earnings.
The important thing to remember is that statutory EPS grew by 8.7% and core EPS grew by 13%. This was a strong result and shouldn't be undervalued, particularly with the dividend growing by 13% too.
FY18 Outlook
The market may not have liked the news that FY18 growth would likely be less than FY17's growth.
Management have predicted that core EPS will grow between 8% to 10%. Most businesses in the ASX100 would be pretty happy with a predicted result like that. A lot of that growth is expected to come from Australia, with France and UK growth slowing.
This could turn out to be a conservative estimate because management upgraded the FY17 guidance during the year and the same could happen again.
Long-term potential
The main reason to invest in Ramsay is not because of what it will achieve in FY17 or FY18, Ramsay will reap the benefits for long-term investors. The ageing demographics of Australia, the UK and France are potentially very positive for Ramsay.
The number of over-65s is expected to increase by 75% over the next two decades. This could be a huge boost to Ramsay's potential pool of patients and therefore the future revenue.
Foolish takeaway
Ramsay is currently trading at 21x FY19's estimated earnings with a fully franked dividend yield of 2.06%.
I think Ramsay is one of the best stocks on the ASX and is well worth a long-term buy at the current price.
