After the first COVID-19 cases were identified in Australia back in January 2020, the total confirmed number of cases (active and recovered) has crept up to nearly 2.4 million. The rate of infection currently stands at 3.9%, according to data compiled in yesterday's Department of Health, States & Territories Report.
In the last week, more than 700,000 COVID-19 tests were conducted in Australia, bringing the total to almost 62 million since accurate testing began.
Now the testing regime is shifting, moving to a more 'rapid' testing agenda that will see patients get their results in a matter of minutes.
But how is this change set to impact the big COVID-19 diagnostics providers in 2022? Let's take a look at what the experts think.
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RATs! Have these shares missed the boat?
We might all be familiar by now that there are two methods of obtaining a COVID-19 test result – the polymerase chain reaction, or PCR test, and the rapid antigen self-tests, better known as RATs.
Those receiving a COVID-19 test within the last week would have received one of the two offerings, depending on a number of variables. Although, the availability of RATs appears to have picked up substantially in the last few weeks.
Specific data on RATs is sparse right now, given the form of testing has only just recently been accepted as a diagnostic tool for COVID-19.
However, several ASX healthcare shares profited immensely on the back of PCR COVID-19 testing over the course of 2020–21. But the rise of rapid testing may be a risk to sector earnings, according to the team at Credit Suisse.
The broker downgraded its outlook on ASX healthcare giants currently involved in COVID-19 diagnostics, noting that Sonic Healthcare Ltd (ASX: SHL) and Healius Ltd (ASX: HLS) are particularly exposed right now.
Sonic closed Tuesday's session down less than 1% at $37.89, whereas Healius finished 1% in the green at $4.52.
Most analysts are constructive on Sonic and Healius given the pair are beneficiaries of the PCR testing regime.
However, as the team at Credit Suisse points out, there has been a significant shift towards rapid testing in recent months, reducing PCR test demand.
This is a risk to both Sonic and Healius' earnings outlooks, the broker says – particularly in FY22 when the shift is taking place.
Shift to RATs an earnings risk to Sonic, Healius, broker says
Credit Suisse believes this change in test trends poses a risk to both Sonic and Healius' sales growth in 2022. Both companies benefitted greatly over the 2 years from PCR test demand.
"We see risk to 2H consensus earnings with the recent fast shift to rapid antigen tests," the broker said in a note to clients.
As such, it downgraded forecasts on Healius' earnings per share (EPS) in FY22, reflecting the slowing COVID-19 tailwinds and lowering its valuation in the process.
"We lower our earnings on Healius by 11% in FY22, due to sharper fall in COVID earnings, and our price target decreases [by 10 cents] to $5.50," the broker said.
With respect to Sonic, the broker reckons it's all about the company's financial health and how it intends to put the balance sheet to work in 2022. The broker said its "focus for Sonic will be on its strong balance sheet and potential for acquisitions".
Goldman Sachs agrees on this point, noting that Sonic's balance sheet has strengthened substantially over the pandemic.
As such, it reckons the healthcare giant "has more than $1.2 billion of firepower to deploy", as quoted from a recent note to investors.
Healius just completed the acquisition of bioanalytical laboratory Agilex earlier this month. The company completed the transaction on a $301 million valuation.
In the last 12 months, the Healius share price has gained more than 9% but is down over 14% this year to date, whereas Sonic has lost more than 19% since January 1.
