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Primary Health Care Limited (ASX:PRY) share price sinks lower on bearish broker note

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

In afternoon trade the leading pathology and GP network operator’s shares are down 4% to $2.36.

Why are Primary Health Care’s shares tumbling lower?

With no news out of the company, today’s decline is likely to be attributable to a note out of Goldman Sachs this morning.

It has initiated coverage on both Primary Health Care and Sonic Healthcare Limited (ASX: SHL) in its note. And while it has placed a neutral rating on Sonic Healthcare’s shares, it hasn’t been so kind to Primary Health Care.

According to the note, it has slapped a sell rating and $2.23 price target on the company’s shares.

Why is Goldman Sachs bearish on Primary Health Care?

Goldman believes that things are likely to get worse for the company before they get better.

The broker believes that its Pathology business could be a drag on its performance this year. It expects the business to be negatively impacted by lower volumes caused by an Australian flu season which was the most benign since 2013.

But there are potential positives on the horizon that could make Primary Health Care worth considering in the future.

Goldman sees a lot of promise from its Medical Centres business. This business has faced a series of challenges in recent times and been largely responsible for its share price underperformance since FY 2015.

And while the broker believes it is too early to call the bottom here, if and when this business can be turned around, its analysts see a significant amount of value accretion.

In respect to Sonic Healthcare’s neutral rating, the broker feels the global pathology provider’s shares are priced correctly to account for the risks facing its U.S. business and pricing reforms in Germany.

What now?

While Goldman may not be bullish on these two shares or private health insurer Medibank Private Ltd (ASX: MPL), it recently gave Australia and New Zealand Banking Group (ASX: ANZ) a buy rating.

I agree with this rating and think it is well worth considering the bank if you haven’t already got meaningful exposure to the sector.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. 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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