Why Primary Health Care Limited shares are storming higher

One of the best performers on the local market on Friday has been the Primary Health Care Limited (ASX: PRY) share price.

In late afternoon trade the healthcare company’s shares are up over 8% to $3.95.

Why are Primary Health Care’s shares storming higher?

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

According to the note, its analysts have upgraded Primary Health Care’s shares to an accumulate rating from hold. The broker has also lifted its price target from $3.50 to a lofty $4.30.

This price target equates to potential upside of over 9% for its shares even after today’s sizeable gain.

Ord Minnett has made the move due to its bullish outlook for the company’s diagnostics segment.

The broker believes that the strength of this segment can help Primary Health Care achieve double digit earnings growth in FY 2019 and FY 2020.

Ord Minnett has predicted that the company will deliver earnings per share of 11 cents in the current year, before rising strongly to 16 cents in FY 2019. Based on the current price, this means its shares are changing hands at 25x estimated FY 2019 earnings today.

Should you invest?

If Ord Minnett’s forecasts are accurate and Primary Health Care does go on to achieve double digit earnings growth in FY 2019 and FY 2020, then I think its shares could be classed as reasonably priced today.

This could arguably make Primary Health Care a decent option for investors looking to gain exposure to the healthcare sector. However, it may be prudent to wait for signs that this strong growth is coming before making a move.

In the meantime, I think that healthcare stars such as CSL Limited (ASX: CSL) or Cochlear Limited (ASX: COH) could be better options.

Alternatively, these up and coming growth shares could be even better options.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Cochlear Ltd. 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 Scott Phillips.

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