The Ramsay Health Care Limited (ASX: RHC) share price has been a strong performer in 2019.
Since the start of the year the private hospital operator's shares have risen a sizeable 15%.
Is it too late to buy Ramsay Health Care's shares?
One broker that thinks it is too late to buy the company's shares is Goldman Sachs.
According to a note out of the investment bank, its analysts have reiterated their sell rating and $57.00 price target on the company's shares. With its shares closing at $66.39 on Monday, this price target implies potential downside of 14% over the next 12 months.
One of the reasons that the broker is bearish on Ramsay Health Care is its current valuation, which it feels has become increasingly stretched.
Based on its sum-of-the-parts analysis, it estimates that the market is currently valuing the company's Australian hospitals at 13.5-14.2x FY 2020 estimated EBITDA. This is an average 74% premium to its global peers.
And whilst it believes some level of premium is justified on the basis of its positioning and scale, the broker believes "the extent of industry pressure relative to other markets warrants a greater degree of caution."
In addition to this, Goldman Sachs believes that affordability issues in the private health insurance (PHI) market will weigh on its margins over the medium term.
It explained: "The decline in PHI participation directly pressures hospital utilisation but, as policyholders seek exclusions to maintain affordability, the value of the remaining policies also fall (lower claims due to fewer procedures covered and/or higher co-pays). Moreover, cost inflation remains a stubborn issue. Nurse wage inflation appears to be running at 2-3% across most of Australia, a source of operating cost that can constitute up to 70% of the total. With industry-wide PHI premium growth at 3.25% in 2019 and potentially declining further near-term, we believe it will be increasingly difficult for operators to protect margins."
Which healthcare shares should you buy?
Goldman may be bearish on Ramsay Health Care, but it remains bullish on a few healthcare names.
These include CSL Limited (ASX: CSL), ResMed Inc. (ASX: RMD), and Opthea Ltd (ASX: OPT). The latter is the broker's top pick and has a conviction buy rating and $4.90 price target on the shares of the developer of novel biologic therapies for the treatment of eye diseases.
