Why this broker upgraded the embattled Pro Medicus (ASX:PME) share price to “buy”

Could there be some light ahead for the medical software management company?

| More on:
ASX share price broker upgrade ASX lithium shares buy represented by upgrade button on computer keyboard

Image source: Getty Images


  • Expensive shares like the Pro Medicus share price have crashed in 2022 due to interest rate fears
  • But Morgans believes the >20% crash in Pro Medicus is a buying opportunity ahead of its results
  • The broker upgraded its shares to “add” from “hold” with a price target of $54.49 a share

The beaten-down Pro Medicus Limited (ASX: PME) share price could finally be catching a break with Morgans upgrading the company’s shares.

The spectre of rising interest rates has taken its toll on the medical management software company. But the broker believes there is too much bad news priced into the Pro Medicus share price.

This is despite the fact that Pro Medicus is still trading on a FY22 forecast price-to-earnings (P/E) multiple of 100 times.

Why the Pro Medicus share price is tumbling in 2022

Shares trading at a steep premium have taken the brunt of the latest market sell-off. Their valuations take a big haircut as interest rates rise.

The US Federal Reserve is set to lead the way to higher global rates. The central bank is tipped to lift rates three times in 2022, and some experts are warning the Fed could even hike four times to tame inflation.

Against this backdrop, the Pro Medicus share price crashed by around 26% over the past month. It isn’t the only one swept up in ASX market sell-off. The Zip Co Ltd (ASX: Z1P) share price and Megaport Ltd (ASX: MP1) have also shed around 20% each over the period.

Is it time to buy Pro Medicus shares?

But, according to Morgans, investors should consider buying Pro Medicus shares ahead of next month’s profit reporting season. The broker has upgraded its recommendation to “add” from “hold”.

“With the share price now significantly more attractive than it was a month ago, we view current prices as a good entry for long-term investors, but also potential trading positions with reduced risk heading into in the upcoming result,” said the broker.

“Short-term risks around the upcoming results remain with full expectations.

“While we sit slightly below consensus, we view any miss as more likely due to timing of contract recognition rather than overheated underlying expectations.”

Long and shorter-term value emerging

Consensus forecasts have set a high hurdle for management to jump over. The average analyst estimate is for a more than 44% increase in revenue and more than 58% uplift in earnings before interest and tax over the same period last year.

But for those willing to ignore the shorter-term gyrations in earnings and market sentiment, Morgans believes the long-term growth drivers for the Pro Medicus share price remains strong.

Morgan’s 12-month price target on the shares is $54.49. This should give investors around a 20% upside if dividends are included.

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 over ten 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 January 12th 2022

Motley Fool contributor Brendon Lau has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns and has recommended MEGAPORT FPO, Pro Medicus Ltd., and ZIPCOLTD FPO. The Motley Fool Australia owns and has recommended Pro Medicus Ltd. The Motley Fool Australia has recommended MEGAPORT FPO. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

More on Broker Notes

Two brokers analysing the share price with the woman pointing at the screen and man talking on a phone.
Broker Notes

How does the IAG share price stack up against analyst ratings?

Let's check in and see.

Read more »

A man wearing a shirt, tie and hard hat sits in an office and marks dates in his diary.
Broker Notes

Broker names 3 reasons the South32 share price could be cheap

South32 shares could be great value according to one leading broker...

Read more »

A woman looks questioning as she puts a coin into a piggy bank.
Broker Notes

Already down 7% in 2022, is the ANZ share price cheap?

Investors following the big four bank might be wondering the same.

Read more »

Business man marking Sell on board and underlining it
Broker Notes

Leading brokers name 3 ASX shares to sell today

Here’s why brokers aren’t feeling positive about these ASX shares…

Read more »

a man holds his hand under his chin as he concentrates on his laptop screen and makes a concerned face.
Growth Shares

Are investors missing out on these ASX share opportunities?

Here are two ASX shares that investors might be missing out on.

Read more »

The hands of three people are cupped around soil holding three small seedling plants that are grouped together in the centre of the shot with the arms of the people extending into the edges of the picture.
Growth Shares

‘Future-proof your portfolio’: experts pick 3 quality growth ASX shares to buy

Growth shares have been hammered the past six months. A couple of fund managers nominate which ones to pick up…

Read more »

Group of thoughtful business people with eyeglasses reading documents in the office.
Broker Notes

Up 30% in 2022, is it too late to buy Beach Energy shares?

Beach Energy could be one to keep an eye on, according to some brokers.

Read more »

Female miner smiling while inspecting a mine site with another miner.
Resources Shares

Brokers name 2 ASX 200 mining shares to buy

Here are two mining shares rated as buys...

Read more »