Healthscope Ltd shares sink lower on broker downgrade

The Healthscope Ltd (ASX: HSO) share price has been amongst the worst performers on the market today with a decline of 3% to $1.82.

This latest decline means that the healthcare provider’s shares have fallen over 20% since the start of the year.

Why are its shares lower today?

With no news out of the company, today’s decline is likely to be in relation to a broker note out of Ord Minnett this morning.

According to the note, the broker has downgraded Healthscope’s shares to a hold rating and cut the price target on its shares to $1.95.

Ord Minnett appears to be concerned that weak data released by APRA recently is a sign that the company could face greater-than-expected margin pressure in FY 2018.

Last week APRA advised that private hospital cover has fallen to its lowest level in over five years amid rising costs and delays in long-promised reforms.

While rival Ramsay Health Care Limited (ASX: RHC) has managed to avoid a downgrade, its shares are almost 3% lower today as investors consider the impact this will have on its business as well.

Should you buy either healthcare shares?

As I expect Healthscope’s earnings growth could be flat at best in FY 2018 and perhaps even FY 2019, I wouldn’t be a buyer of its shares today. Especially as they trade at a premium to the market-average at 18x trailing earnings.

But I would consider an investment in Ramsay Health Care. I believe its geographically diverse business goes some way to sheltering it from the declines in private hospital cover and its potential expansion opportunities should allow it to grow earnings at a solid rate over the long term.

Finally, as well as Ramsay, here are three more top growth shares that I would buy today.

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Motley Fool contributor James Mickleboro has no position in any of the 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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