MENU

Morgan Stanley warns Ramsay Health Care Limited (ASX: RHC) is facing a sell-off

Bargain hunters drawn to Ramsay Health Care Limited Fully Paid Ord. Shrs (ASX: RHC) following its 25% crash over the past year might want to hold off buying the stock until next month.

The share price of our largest listed hospital operator is at risk of tumbling when it releases its profit results later this month, according to Morgan Stanley.

This hasn’t stopped the stock from jumping 2.5% today to $54.75 when the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) index is up 0.6%.

But this party may not last with the broker tipping a 70% to 80% chance that Ramsay’s share price will fall over the next 60 days.

The dim view of the stock is based on Morgan Stanley’s belief that the group’s FY19 outlook and earnings guidance will be worse than what the market is expecting. Ramsay is scheduled to announce its results and outlook on August 30.

There are a few factors that are expected to weigh on Ramsay’s performance in the current financial year. The first is pressure on Australian private hospitals from more patients opting for the public system and demand for lower prices from private health insurers.

This trend is unlikely to change in FY19.

Then there are growing challenges in the UK market where Ramsay has a presence. The profit warning from Ramsay’s UK competitor, Spire Healthcare, that’s caused by fewer referrals from the National Health Service, leaves Ramsay exposed to similar issues.

Consensus forecasts for Ramsay are at risk of being cut when the group faces shareholders with its profit report card in three weeks.

“Our revised estimates imply flat FY19e NPAT outlook (vs consensus +5.7%),” said Morgan Stanley.

“RHC has fallen 12% since the company lowered FY18 guidance to ~7% from 8-10% previously on 21-Jun-18 (vs ASX200 +1% over the same period) and we expect further downgrades will continue to negatively impact the stock.”

The stock may need to fall towards Morgan Stanley’s price target of $50.00 a share before it sees any real buying support.

The irony is that Ramsay’s share price weakness comes at a time when overseas investor demand for Australian medical facilities stocks is strong.

International investors who have been spooked by escalating trade tensions between the US and China have been buying into the sector with shares like Sonic Healthcare Limited (ASX: SHL) and Healthscope Ltd (ASX: HSO) gaining ground – although the latter’s share price has also been inflated by a takeover bid.

If you are looking for dependable blue-chip stocks to invest in, you will want to read this report from the experts at the Motley Fool.

They have picked their best three blue-chip stock ideas for FY19 and you can find out what these are by following the free 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 has no position in any of the stocks mentioned. 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 Scott Phillips.

The 5 mining stocks we’re recommending in 2019…

For decades, Australian mining companies have minted money for individual investors like you and me. But if you believe the pundits and talking heads on TV, those days are long gone. Finito! Behind us forever…

We say nothing could be further from the truth. To earn the really massive returns, you’ve got to fish where others aren’t fishing—and the mining sector could be primed for a resurgence. That’s why top Motley Fool analysts just revealed their exciting new research on 5 ASX miners they believe could help you profit in 2019 and beyond…

Including:

The best way we see to play the global zinc shortage… Our #1 favourite large-cap miner (hint: it’s not BHP)… one early-stage gold miner we think could hit the motherlode… Plus two more surprising companies you probably haven’t heard of yet!

For free access to our brand-new research, simply click here or the link below. But be warned, this research is available free for a limited time only, and we reserve the right to withdraw it at any time.

Click here for your FREE report!