Is Ramsay Health Care Limited a buy at this share price? 


The share price of Ramsay Health Care Limited (ASX: RHC) is currently a little over 10% below its 52 week high. Warnings of slowing hospital admissions growth from Healthscope Ltd (ASX: HSO) in October of last year and the retirement of CEO Chris Rex had seen the Ramsay Health Care share price soften from highs in August 2016 of over $80, to currently trade under $70.  

Ramsay Health Care is a healthcare service provider and operates primarily through the operation of over 220 hospitals in Australia, France, the United Kingdom, Indonesia and Malaysia.

Its healthcare services include day surgeries, rehabilitation services, maternity services, and psychiatric services. In Australia, Ramsay operates 70 hospitals and admits almost 1 million patients each year. 

The appointment of Craig McNally, an experienced executive from within the company, as the new CEO has made for a reasonably smooth transition.

Long term forecasts for growth in the ageing population also provide a tailwind for the industry. Further, Ramsay has continued to grow strongly. A return on equity of over 20% last year, with forecasts for those returns to be maintained, mean that Ramsay is in a good position to compound its growth. Cash flow is strong, however, debt to equity is high. 

Ramsay is currently trading at a price to earnings ratio of around 26, which is higher than the market at around 17, and the sector at around 20.

However, given the debt that is being carried, using an enterprise multiple to ascertain value may be worthwhile. Enterprise value is simply market capitalisation minus debt plus cash or equivalents.

Ramsay has an enterprise value of around $16.7 billion dollars. And with EBITDA of approximately $1.25 billion, Ramsay has an enterprise multiple of just over 13.

This most likely represents fair value for a strong company, but doesn’t compel me to buy at the current price. I am inclined to wait, but perhaps even a small drop in price might change my mind.   

3 More Ramsay-style Blue Chips To Buy In 2018

For many, blue chip stocks mean stability, profitability and regular dividends, often fully franked..

But knowing which blue chips to buy, and when, can be fraught with danger.

The Motley Fool's in-house analyst team has poured over thousands of hours worth of proprietary research to bring you the names of "The Motley Fool's Top 3 Blue Chip Stocks for 2018."

Each one pays a fully franked dividend. Each one has not only grown its profits, but has also grown its dividend. One increased it by a whopping 33%, while another trades on a grossed up (fully franked) dividend yield of almost 7%.

The names of these Top 3 ASX Blue Chips are included in this specially prepared free report. But you will have to hurry. Depending on demand - and how quickly the share prices of these companies moves - we may be forced to remove this report.

Click here to claim your free report.

Motley Fool contributor Stewart Vella owns shares of Ramsay Health Care Limited. The Motley Fool Australia has recommended Ramsay Health Care Limited. 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.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss a very important event! Chief Investment Advisor Scott Phillips and his team at Motley Fool Share Advisor are about to reveal their latest official stock recommendation. The premium “buy alert” will be unveiled to members and you can be among the first to act on the tip.

Don’t let this opportunity pass you by – this is your chance to get in early!

Simply enter your email now to find out how you can get instant access.

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our Financial Services Guide (FSG) for more information.