Medical imaging and pathology giant Sonic Healthcare Limited's (ASX: SHL) share price is up nearly 14% in 2019. After being sold off heavily in late 2018, strong defensive earnings and a key US acquisition could make the Sonic share price a potential long-term buy.
Strong defensive earnings
Earlier this year Sonic Healthcare reported strong half-year results and upgraded full-year guidance. Strong organic growth in laboratory markets and operations saw first-half revenue of $2.9 billion, up 9% from the year prior. Sonic also reported a 7% increase in net profit of $223 million and increased its interim dividend to 33 cents. Sonic lifted full-year guidance for its earnings before interest, tax, depreciation and amortisation (EBITDA) by 8% in comparison to EBITDA of $962 the year prior.
Acquisition and update
Sonic's upgrade of full-year guidance came on the back of its $750 million acquisition of Aurora Diagnostics in the US. Aurora, which is a leading provider of anatomical pathology services, operates 32 practices across the US, which is the largest pathology market in the world.
The acquisition of Aurora is intended to provide Sonic with a strategic platform to accelerate growth in the US. With greater opportunities in clinical pathology, increased margins and profit growth, revenue from US operations are projected to leapfrog Sonic's Australian market following the acquisition.
Effects of federal election
With the impending federal election in Australia, the healthcare sector looks to benefit regardless of which party wins. As both parties look to improve funding in imaging and primary care, pathology and medical imaging companies like Sonic Healthcare will likely benefit.
Foolish takeaway
A favourite among dividend investors, Sonic's valuation is in line with a forward PE multiple of 18.8x. The company currently pays out 74% of earnings as a dividend, equating to a dividend yield of around 3.7%. In my opinion, demand for pathology services in Australia will continue to grow in the long term and Sonic's acquisition and expansion into the US has awesome potential. Backed by solid defensive earnings and a strong balance sheet the Sonic share price is a very attractive long-term buy.
