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Sonic Healthcare share price falls despite strong first-half results

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The Sonic Healthcare Limited (ASX: SHL) share price has recovered slightly today after falling in early trade. Sonic shares fell to a low of $30.40 following the release of its financial report for the first half of FY20. 

How did Sonic perform for the first half?

Despite the negative price action, Sonic reported a 14% increase in profit for the first half of FY20 of $254 million and also informed the market that it’s on track to achieve its guidance for the full-year.

Sonic’s first-half report was also highlighted by a 14% increase in underlying earnings before interest, tax, depreciation and amortisation (EBITDA) of $548 million and a 15% surge in revenue to $3.3 billion.

According to management, the acquisition of Aurora Diagnostics a year ago has helped drive Sonic’s strong performance in the first half.

In an address to shareholders, Sonic Chief Executive Colin Goldschmidt stated, “The Aurora business has performed well since acquisition, in line with our expectations”.

Mr Goldschmidt added, “The results for the half again demonstrate the predictable, reliable nature of Sonic’s business, with the company on track to deliver the earnings growth guidance set in August 2019.”

The Aurora acquisition saw Sonic have strong revenue growth in the US market with solid cost and revenue synergies. Sonic also saw strong organic revenue growth in its Australian and European markets.

Additionally, the company announced an increase in its interim dividend from 33 cents to 34 cents per share.

What is the outlook for Sonic Healthcare?

As demonstrated by its US$540 million acquisition of Aurora diagnostics, Sonic has been strategically focused on expanding its presence in the lucrative US market. As a result, the company’s board indicated the potential for more acquisitions in the future, particularly in the clinical pathology market.

In his address to shareholders, Mr Goldschmidt stated, “The company is well set for future growth, with strong brands and market positions, our binding culture of Medical Leadership, and a balance sheet which provides significant financial flexibility,” he said. “We continue to target synergistic acquisitions, joint ventures, and contract opportunities, particularly in the US and European laboratory markets.”

Overall, Sonic’s performance in the first half reflects the stable and predictable nature of the business. Sonic is now the third-largest medical laboratory company in the world, providing laboratory, pathology and radiology services in 8 countries.

According to management, the pathology giant is well poised for future growth with favourable industry dynamics and stable non-cyclical growth working in its favour.

At the time of writing, the Sonic share price has recovered and is currently trading 1.08% lower at around $31.11. 

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Motley Fool contributor Nikhil Gangaram has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Sonic Healthcare Limited. 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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