2 ASX 200 blue chip shares to buy in May: Analysts

Xero is one of the ASX 200 blue chip shares that could be an opportunity in May, according to analysts.

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Key points

  • These two ASX 200 blue chip shares are opportunities to buy in May, according to analysts
  • Xero is one of the world’s leading cloud accounting businesses
  • Sonic Healthcare is a large pathology business

Analysts have identified some S&P/ASX 200 Index (ASX: XJO) blue chip shares that could be opportunities to buy in May 2022.

Blue chip shares are some of the biggest businesses on the ASX. Often, they are the market leaders of their industries in Australia.

With that in mind, here are two potential opportunities that analysts like:

Xero Limited (ASX: XRO)

Xero is one of the world’s largest accounting software providers.

After a 34% decline in the Xero share price since the start of the year, it now has a market capitalisation of $14.6 billion.

It’s currently rated as a buy by the broker Citi, with a price target of $132.60. That implies a possible rise of close to 40% over the next year for Xero.

Xero is due to release its FY22 result in a couple of weeks.

However, the company’s FY22 half-year result indicated ongoing growth for the ASX 200 blue chip share. It reported that both operating revenue and total subscribers increased by 23%. This helped annualised monthly recurring revenue increase by 29% to NZ$1.13 billion.

Xero pointed to the strength of its software as a service (SaaS) metrics that have continued to “trend positively” including the average revenue per user (ARPU), the gross profit margin (up 1.4 percentage points to 87.1%,) and its subscriber churn.

The company says that it will continue to focus on growing its global small business platform and maintain a preference for reinvesting cash flow generated to drive long-term shareholder value.

Sonic Healthcare Ltd (ASX: SHL)

Sonic is a large, global provider of pathology services. It’s also growing its radiology presence in Australia. The company has a significant pathology presence in Australia, the US, Germany, the UK, and Switzerland.

The company continues to see the ongoing growth of its ‘base’ business revenue, which excludes COVID-19 testing. It’s expecting ongoing growth of its base thanks to “strong” underlying drivers, including a catch-up of other testing postponed throughout the pandemic.

However, COVID testing has been a significant earner for the business. In the first six months of FY22, COVID revenue rose 16% to $1.3 billion.

While COVID testing volumes may be changing, the ASX 200 blue chip share is expecting a sustainable level of COVID testing into the future, including “routine COVID testing, screening programs, variant testing, whole genome sequencing and antibody tests”.

The business has been making acquisitions with the extra capital that it has accumulated thanks to the COVID testing cash flow. Two examples of that are ProPath, which generates US$110 million of revenue, and Canberra Imaging Group, which generates A$60 million of revenue.

Sonic Healthcare says that an active pipeline of opportunities is under evaluation.

It’s currently rated as a buy by the broker Credit Suisse, which suggested that Sonic Healthcare can keep benefiting from COVID PCR tests. The broker thinks the Sonic share price is valued at 19 times FY23’s estimated earnings.

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns and has recommended Xero. The Motley Fool Australia owns and has recommended Xero. The Motley Fool Australia has recommended Sonic Healthcare 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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