The share price of Ramsay Health Care Limited Fully Paid Ord. Shrs (ASX: RHC) has been beaten down to a four-year low but the stock is likely to bounce back in the near-term for a number of reasons.
The hospital operator lost 1.7% on Friday to finish near its intra-day low at $56.66 – taking its one-year loss to 18% when the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) index is up 5%.
You can partly blame tax-loss sellers for its dismal performance, but the selling pressure from those looking to book some losses to offset their tax obligations will likely taper off from this week onwards.
But there are four other reasons to explain why Ramsay's share price has been under the weather, according to Morgan's analyst Scott Power.
He points to recent data showing a drop in private hospital industry volume growth and an increasing number of private patients opting to go to public hospitals as two factors souring sentiment towards the stock.
Then there is the falling trend of people opting for private hospital insurance (PHI) cover with increases in private insurance premiums a hot-button issue as well as excessive out-of-pocket expenses for surgery, which is well covered in the media, for putting off investors.
Fellow hospital operator Healthscope Ltd (ASX: HSO) would also be in the dog house if not for two takeover offers it received.
Other medical facilities operators like Primary Health Care Limited (ASX: PRY) and Sonic Healthcare Limited (ASX: SHK) are faring better too as they are not seen as being as exposed to these negative trends, although their share prices are underperforming the top 200 stock index over the past year.
The good news is that Power doesn't think its structural headwinds buffeting Ramsay. The deterioration in private hospital industry volume is more a timing issue while the jump in private patients going to public hospital is not sustainable, in his view.
The more patients entering the public system, the worse the wait times become. Wait times are the key driver for patients opting for the private system.
While there is no denying the drop in PHI cover, Power points out that the decrease comes off a high base.
"While the latest data shows the percentage of the population currently covered by PHI doesn't paint a pretty picture, you need to realise that from its peak in Jun-15 of 47.3%, despite the decline seen to 45.5% in Mar-18, more than 40k people have taken up PHI," he said.
"Unfortunately, the rise in out-of-pocket surgery costs is a burden we must all must bear. However, health insurers and private hospitals shouldn't be the scape goat as they have little to no control in what individual physicians charge."
It's also worthwhile noting that Ramsay is sticking to its 8% to 10% earnings per share (EPS) growth guidance and that's a pretty respectable target for what is essentially a defensive stock with a strong track record.
Finally, on the topic of takeovers, Ramsay's name has not been bandied around as a target despite its weak share price performance but that's probably more to do with the make up of its register with Paul Ramsay's family controlling around 30% of the company.
But that hasn't stopped Frank Lowy's Westfield Corp (ASX: WFD) from falling into the hands of a European buyer, so never say never.
