The Ramsay Health Care Limited (ASX: RHC) share price was out of form again on Friday following the market volatility.
The private healthcare company’s shares fell 1% to $64.23. This meant the Ramsay Health Care share price lost 4% for the week.
While this is disappointing, it may have created a buying opportunity for investors.
According to a note out of Goldman Sachs, its analysts have a conviction buy rating and $75.00 price target on its shares.
Based on the current Ramsay Health Care share price, this price target implies potential upside of almost 17%.
Why is Goldman Sachs positive on the Ramsay Health Care share price?
While there are a number of reasons that the broker thinks the Ramsay Health Care share price is good value, I have picked out three key reasons below.
They are as follows:
European business is improving
Goldman notes that the performance of its European business is improving and sees limited downside risk in near term.
“Whilst uncertainty persists in Europe (35% of EBIT), much of the downside risk is limited by existing government support, and we see clear scope for improving near-term trends. Mid-term, we see a greater need/urgency for the private sector to command a larger share of public sector work (across all markets).”
Asia-Pacific margin resilience
The broker has been pleased how well Ramsay’s margins have held up despite the tough operating environment.
“Despite numerous challenges, we estimate the comparable APAC margin declined only -20bps in the period. Following an encouraging start to CY21, we expect to see positive trends continue into FY22: 1) elevated utilisation profile: 2) improving cost absorption; 3) tapering of cash ‘covid costs’; 4) improving sales mix (non-surgical); and 5) improving surgical mix (higher-acuity).”
Good value for money
A final reason Goldman believes the Ramsay Health Care share price can go higher is its current valuation. The broker doesn’t believe the market is valuing it correctly given its positive outlook.
“The stock is trading at 8.7x EBITDA for a 7% EBITDA CAGR (FY21-24E), towards the bottom of its 5-year range. We believe the improvement in near-term fundamentals is still not reflected in consensus forecasts or current trading multiples. We raise our 12-month TP to $75 and reiterate our Buy (on CL).”
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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Ramsay Health Care Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.