The Ramsay Health Care Limited (ASX: RHC) share price has been a strong performer over the last several weeks. Shares in the private hospital operator have risen 11% to $72.30 since the Federal election on 18 May, despite no market sensitive announcement being released since March.
Prior to the election, the Labor Party had announced a policy of putting a 2% cap on premium increases by private health insurers, which was priced into Ramsay's share price.
There were concerns that private health insurers would place additional pressure on private hospital operators such as Ramsay to lower prices in order to compensate for the capped premium increases. This would have materially impacted Ramsay's margins and future profitability.
The election result has seen a reversal of fortunes in the sector, as business is expected to continue as usual moving forward. Similarly, investors have also become bullish on private health insurers such as Medibank Private Ltd (ASX: MPL) and NIB Holdings Limited (ASX: NHF), which have seen their share prices rise 20% and 32%, respectively, since the Federal election.
Is this a return to double-digit earnings growth?
Ramsay has guided for a soft FY19 by its own standards with management reaffirming core earnings per share growth of up to 2% including the Capio acquisition in February. The purchase of Capio is expected to be dilutive to earnings in FY19 and accretive within 2 or 3 years as Ramsay focuses on achieving synergies from the acquisition.
The market is currently pricing in an acceleration in earnings growth for FY20, with the current earnings per share consensus for FY20 at $3.16. This would represent earnings growth of around 10% over the current FY19 consensus forecast of $2.87, and a return to the double-digit earnings growth that the company has delivered on a relatively consistent basis over the last decade.
Foolish takeaway
For long-term shareholders, demand from the ageing population is expected to drive growth in the sector and Ramsay continues to maintain a market-leading position in Australia, which remains the largest contributor to group profitability.
However, at 23 times forward earnings, shares in Ramsay are not cheap and a lot of bullishness is baked in at current prices. As a result, I would view Ramsay as a hold and would wait until the company updates the market on its expectations for FY20 before reassessing.
