How have ASX healthcare shares performed during the August 2021 earnings season?

The healthcare sector has experienced some big wins and losses as it navigates the impacts of COVID-19.

| More on:
smiling health care workers in a medical setting

Image source: Getty Images

The ASX is home to dozens of healthcare companies, many with market capitalisations in the billions.

CSL Limited (ASX: CSL) is the largest cap ASX healthcare share. Other major players include hearing implant maker Cochlear Limited (ASX: COH) and Fisher & Paykel Healthcare Corp Ltd (ASX: FPH), which is in the healthcare products business.

Fisher & Paykel has been at the forefront of the fight against COVID-19, supplying hospitals with equipment vital to treating patients. Sonic Healthcare Limited  (ASX: SHL) is another ASX healthcare share involved in the COVID fight, becoming Australia’s largest non-government COVID-19 vaccination provider.

As revealed during last month’s reporting season, the pandemic has had a mixed impact on ASX healthcare shares. 

How have ASX healthcare shares performed against the market?

Shares in Sonic Healthcare have performed strongly in 2021, up 26.7% year to date and more than 31% above its pre-COVID levels.

The CSL share price has gained 7.5% in 2021, below the All Ordinaries Index (ASX: XAO), which is up 12.5%. The CSL share price remains slightly below its pre-COVID high.

Also trading just below its pre-COVID high, the Cochlear share price has risen 25% for the year, thanks to the resumption of implant surgeries in many markets.

The Fisher & Paykel share price, on the other hand, has increased just 4% over the course of 2021 but remains more than 50% higher than its pre-COVID price. 

Who are the healthcare winners this earnings season? 

Sonic Healthcare was a clear winner this earning season, reporting revenue growth of 28%.

Earnings before interest, tax, depreciation and amortisation (EBITDA) grew 81% to $2.6 billion, boosting profits by 149% to $1.3 billion. COVID-19 testing contributed significantly to revenue and earnings in FY21, with Sonic Healthcare performing approximately 30 million PCR tests in some 60 laboratories globally.

The company operates across 7 countries, providing pathology, diagnostic imaging, radiology and general practice medical services. This diversification is providing increased opportunities for expansion and risk mitigation. 

Sonic Healthcare said it reduced net debt by $1,082 million in FY21 thanks to strong operating cash flow and a favourable exchange rate impact. The company’s gearing ratio is currently 12.5%, its lowest level in 20 years, and it has some $1.5 billion in available liquidity. This leaves Sonic well-positioned for ongoing value accretive acquisitions and other growth opportunities. The company declared a final dividend of 55 cents, 65% franked. 

Cochlear achieved record sales revenue in FY21 driven by a combination of market share gains, market growth, and rescheduled surgeries from COVID shutdowns.

Sales revenue increased 10% to $1,493 million as cochlear implant units increased 15% to 36,456 units. Compared to pre-COVID FY19, units increased by 7% and sales revenue by 9%.

Underlying net profit was $236.7 million, up 54% from FY20. The company declared a final dividend of $1.40 per share (unfranked), bringing full-year dividends to $2.55 per share. This was a 59% increase on FY20 and represented a payout of 71% of underlying net profit. 

CSL reported a full-year net profit of $2.375 billion, up 10% on a constant currency basis.

Despite the uncertainties brought on by the COVID-19 pandemic, CSL maintained all critical operations and manufactured 50 million doses of the Astra Zeneca vaccine for the Australian Government.

Its influenza vaccines business, Seqirus, delivered an exceptionally strong performance with revenue up 30% on a constant currency basis. CSL’s earnings per share (EPS) were $5.22, up 10%. The company declared a final dividend of US$1.18 per share, franked at 10%. This brings its full-year dividends to US$2.22 per share, up 10%. 

And the losers? 

Fisher & Paykel’s financial year ended on 31 March, but the company did provide an FY22 trading update last month.

The update revealed revenue for the first four months of the financial year was 2% below the prior comparable period, which was a period of high demand due to surges in COVID.

Revenue for the first four months was $583 million, with 74% from the hospital product group and 26% from the homecare product group.

But the company warned it did not expect hospital revenue to continue at an elevated level for the remainder of the financial year given ongoing vaccination activity. 

What is the outlook for ASX healthcare shares?

CSL says demand for the company’s core plasma products remains robust, and the influenza vaccines business is expected to continue to perform well.

Some margin easing is occurring as the result of plasma costs which will continue into FY22. The company is anticipating a net profit after tax of $2,150 million to $2,250 million in FY22, slightly below FY21 results.

Cochlear has provided net profit guidance of $265 million – $285 million for FY22, a 12% – 20% increase on FY21. This factors in market growth, continuing recovery in surgery rates, and investment in market growth activities. 

Fisher & Paykel has declined to provide revenue or earnings guidance for FY22. The company cited uncertainties associated with vaccination rates, the efficacy of vaccines, and public responses to COVID-19 as factors inhibiting its ability to provide guidance.

Over the short term, hospital sales will continue to be impacted by COVID-19 related hospital admissions. Over the longer term, the impact has been an increased installed base of hardware and increased physician awareness of the company’s products and therapies. Fisher & Paykel believes this will result in increasing numbers of patients receiving the benefits of its offerings in the years to come. 

Despite the pandemic, Sonic Healthcare expects ongoing growth of its base business, with underlying growth drivers remaining unchanged. The company said the base business was becoming increasingly resilient to the impacts of pandemic waves, with fluctuations mitigated by geographical and business sector diversity.

It expects significant revenue from COVID testing to continue into the foreseeable future, with the Delta variant driving substantial recent increases in volumes.

Nonetheless, Sonic has declined to provide FY22 guidance due to COVID-related unpredictability. However, we can expect some possible acquisition activity, with Sonic confirming it is considering opportunities in Australia, the United States, and Europe. 

Wondering where you should invest $1,000 right now?

When investing expert Scott Phillips has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for more than eight years has provided thousands of paying members with stock picks that have doubled, tripled or even more.*

Scott just revealed what he believes could be the five best ASX stocks for investors to buy right now. These stocks are trading at near dirt-cheap prices and Scott thinks they could be great buys right now.

*Returns as of August 16th 2021

Motley Fool contributor Katherine O’Brien owns shares of CSL Ltd. and Cochlear Ltd. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and has recommended CSL Ltd. and Cochlear Ltd. The Motley Fool Australia has recommended Cochlear Ltd. and Sonic Healthcare Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

More on Earnings Results