The Ramsay Health Care Limited (ASX: RHC) share price will be on watch this morning after the private hospital operator was the subject of a bearish broker note.
According to a note out of Goldman Sachs, its analysts have retained their sell rating and $57.00 price target on the company's shares.
Considering the Ramsay Health Care share price closed last week at $73.09, this price target implies potential downside of just over 22% during the next 12 months.
Why is Goldman Sachs bearish on Ramsay Health Care?
According to the note, the broker has concerns over the structural issues that are impacting the healthcare sector.
Its analysts said: "Whilst payor pressure is likely less steep without a mandated 2% premium cap, the structural issues prevailing prior to the election result must still be addressed, and we expect continued price/mix erosion through the mid-term."
Goldman notes that for many years Ramsay benefited from mid/high-single digit growth in both volume and price in Australia.
However, due to a series of structural challenges, which are rooted in affordability/efficiency, Goldman believes these levels are unlikely to be achieved again in the medium term.
"In our view, a 2% premium growth mandate is now unlikely to manifest under the current political regime, but we still expect a downward trajectory as affordability remains a real (and growing problem). Premiums have outpaced inflation for many years consecutively. We believe a period of lower growth/inflation/rates in Australia provides further downside risk."
In light of this, the broker has concerns over Ramsay's growth prospects over the medium to long term.
It added: "RHC is currently growing above industry averages, as corroborated by recent performance and industry feedback. We believe this is achievable due to its scale and market-leading portfolio but, over the long-term we believe it is difficult for any player with such dominant share to sustainably outperform the market, as demonstrated historically. In any case, recent industry data suggests that in-patient volumes are continuing to deteriorate, a trend which RHC will struggle to avoid with >30% share."
Overall, the broker believes these headwinds make Ramsay's shares expensive at the current level and therefore continue to rate them as a sell.
Ramsay isn't the only healthcare share that Goldman Sachs is bearish on. Last week its analysts downgraded NIB Holdings Limited (ASX: NHF) shares to a sell rating with a $5.63 price target on valuation grounds. The broker also has a sell rating on Medibank Private Ltd (ASX: MPL) shares for similar reasons.
