Broker gives its verdict on the Ramsay Health Care (ASX:RHC) share price

Is the Ramsay share price in the buy zone?

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The Ramsay Health Care Limited (ASX: RHC) share price came under pressure on Thursday.

The private hospital operator’s shares fell 4% to $69.38.

Why did the Ramsay Health Care share price fall?

Investors were selling down the Ramsay Health Care share price following the release of a trading update.

That update revealed a decent 1.3% increase in unaudited first quarter revenue to $3.2 billion, but a 39.5% decline in unaudited quarterly profit after tax to $58.1 million.

This was driven by the impacts of elective surgery restrictions and disruptions caused by isolation orders and lockdowns across Australia.

Is it time to buy?

One leading broker that sees value in Ramsay Health Care’s shares following their decline is Goldman Sachs.

According to a note from this morning, the broker has reiterated its buy rating and $74.00 price target on the company’s shares.

Based on the Ramsay Health Care share price, this implies potential upside of almost 7% for investors. This potential return stretches to almost 9% if you include dividends.

What did the broker say?

While the broker acknowledges that trading conditions will remain challenged for a little while longer, it believes Ramsay is well-placed to bounce back strongly in 2022.

Goldman commented: “Whilst operating performance will remain challenged in 2Q22, we see scope for much stronger operating conditions to manifest from early-2022: 1) elevated utilisation profile (backlog-assisted and catalysed by reduction/removal of remaining surgery restrictions): 2) improving cost absorption (two-thirds of costs are fixed); 3) tapering of cash ‘covid costs’ (GSe: 5-10% of pre-Covid EBIT currently); 4) improving sales mix (non-surgical); and 5) improving surgical mix (higher-acuity).”

The broker also highlights that the Ramsay Health Care share price is trading on attractive multiples and sees scope for a rerating in the future.

It concluded: “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 strong potential for improvement in near-term fundamentals is still not reflected in consensus forecasts or current trading multiples. We reiterate our Buy rating and $74 12-month Target Price.”

Motley Fool contributor James Mickleboro has no position in any of the stocks 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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