Leading broker upgrades Ramsay (ASX:RHC) share price to buy rating

The good times could be returning for this healthcare giant…

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The Ramsay Health Care Limited (ASX: RHC) share price was on form on Wednesday.

The private hospital operator’s shares ended the day 2% higher at $63.49.

This means the Ramsay share price has now broken into positive territory for the year.

Is the Ramsay share price in the buy zone?

One leading broker that believes the Ramsay share price is good value is Citi.

According to a note out of the broker yesterday, its analysts have upgraded the company’s shares to a buy rating from neutral. Citi has also increased its price target from $67.00 up to $76.00.

Based on the latest Ramsay share price, this implies potential upside of almost 20% over the next 12 months excluding dividends. If you include them, this potential return stretches to over 22%.

Why did Citi upgrade Ramsay?

Citi made the move partly on valuation grounds, noting that the Ramsay share price has materially underperformed the ASX 200 in recent months and even after announcing its takeover approach of UK-based Spire Healthcare.

In addition to this, Citi is expecting the healthcare sector to return to normal in FY 2022, which it believes will lead to improving earnings. And while the broker suspects the Ramsay may need to raise capital in the future, it has factored this into its valuation.

Citi commented: “We are upgrading RHC to Buy post its bid for Spire Healthcare in the UK. The stock has fallen since the announcement, and has underperformed the ASX200 by 14% in the last quarter, and 40% over the last five years (making it the worst-performing ASX200 Healthcare company over that time frame). While the business currently remains severely impacted by the pandemic, we expect incremental news to be positive as health systems return to more normal conditions in FY22 and FY23.”

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James Mickleboro does not own any shares mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. 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.

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