MENU

Why the Sonic Healthcare Limited (ASX:SHL) share price is falling today

The share price of Sonic Healthcare Limited (ASX: SHL) crashed this morning on fears that the medical diagnostic services group is facing its own big bank de-rating moment.

The stock tumbled by around 3% at the opening bell before recovering some of its steep losses to trade 1.1% in the red at $23.70 during the morning session, when the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) index is down 0.5%.

The stock could keep underperforming for a while yet as authorities investigates its involvement in the Irish cervical cancer scandal that could potentially expose Sonic to paying hundreds of millions of dollars in liabilities.

According to a report in the Australian Financial Review, Sonic’s US division is accused of being one of the laboratories that had given patients the “all clear” when it later emerged they were at high risk of cervical cancer.

The company’s US lab at the centre of the scandal, Clinical Pathology Laboratories (CPL), had to pay £2.5 million ($4.4 million) to an Irish woman after it misdiagnosed her pap smear and who’s now terminally ill.

The Irish government is now investigating how wide-spread the problem is after at least 208 women were given negative results but who were later diagnosed with cervical cancer.

The country’s cervical screening program is undertaken by three labs, including Irish-based Medlab Pathology, which works with CPL, according to the AFR. The other two labs have no links to Sonic.

Sonic is reassuring investors that this is an isolated incident and that the company has a good reputation in the market for best practices.

There’s nothing to suggests otherwise, but then many experts also thought the same of our big banks that include Commonwealth Bank of Australia (ASX: CBA), Westpac Banking Group (ASX: WBC), National Australia Bank Ltd. (ASX: NAB) and Australia and New Zealand Banking Group (ASX: ANZ).

Investors are particularly sensitive about corporate bad behaviour given the big destruction in shareholder value when the Banking Royal Commission exposed “oversights” by the big banks and AMP Limited (ASX: AMP).

The thing is, the Irish scandal could prompt other countries to investigate practices at medical labs, including those run by Sonic.

Increased government scrutiny is almost always a value-destroying exercise for listed companies. Shareholders should pay close attention to this space.

Those looking for safer large cap stock opportunities may be keen to read a free report by the experts at the Motley Fool. They have picked their top three blue-chip stocks for 2018 and you can find out what they are for free by following the link below.

Top 3 ASX 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 Brendon Lau owns shares of Australia & New Zealand Banking Group Limited, National Australia Bank Limited, and Westpac Banking. The Motley Fool Australia owns shares of National Australia Bank 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 Scott Phillips.

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.