The Healthscope Ltd (ASX: HSO) share price has been a disappointment over the past year, with the final straw being the release of its FY17 results, which sent the share price down to $1.62.
However, since then the price has actually risen by 16% to $1.88. I thought the market had been too harsh on Healthscope and I almost bought shares, sadly I didn't.
I think the share price could still give investors solid returns over the next few years for the following reasons:
Construction and expansion projects are on track
What initially intrigued me about Healthscope was its projected increase of hospital beds and operating theatres.
The biggest project is the Northern Beaches Hospital which should add 450 beds. In total management expect to add 566 beds and 38 operating theatres by FY19.
Private health insurance
A lot of players in the industry, including the government, are recognising how important it is to uphold the strength of the private health system.
With the government announcing that more will be done to help lower premiums, particularly for younger people, this should result in Healthscope's patient base feeling less under pressure due to costs.
Franking credits
Historically, dividends make up around half of the share market's returns and this (normally) doesn't include the franking credits effect. Franking credits make up 30% of a grossed-up dividend yield.
At the moment, Healthscope doesn't attach franking credits but it may do soon because it's generating a taxable profit each year and is therefore creating franking credits.
Franking credits could turn Healthscope's 3.73% unfranked yield into a grossed-up yield of 5.33%, adding to the returns of an investor.
Foolish takeaway
Healthscope is currently trading at 19x FY18's estimated earnings. Healthscope isn't going to smash the lights out but I believe it will be a solid long-term performer from this price.
