Sonic Healthcare shares hit 52-week low as analysts take a scalpel to targets

Analysts have sharpened the knives after the latest blood-sucking half year at Sonic Healthcare.

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The Sonic Healthcare Ltd (ASX: SHL) share price has reached a fresh 52-week low today.

In late afternoon trading, shares in the blood-testing beast are 0.6% lower at $29.06 apiece. This is roughly on par with the S&P/ASX 200 Index (ASX: XJO), which is 0.7% worse for wear on Wednesday.

Sonic, a $14 billion company, recorded a new 12-month low early in the session. The share price fell as much as 3.86% at one point, hitting $28.11.

Sonic Healthcare share price targets get carved up

After posting a disappointing result yesterday for the first half of FY2024, the pain continues to spill over into today's session. However, this time, the negative move is not attributable to news directly from the company.

Instead, there's a good chance investors are looking less favourably on Sonic Healthcare shares as analysts revise their price targets. Following yesterday's results, two brokers have amended their targets.

Firstly, analysts at Citi downgraded their rating on Sonic from a buy to neutral. Accompanying the downgrade was a cut price target from $33.00 to $31.00 per share. This suggests only a 6% upside from yesterday's closing price.

Likewise, the team at Jefferies slashed their Sonic Healthcare share price target by 12.4% to $28.90.

Weak results call for valuation worry

Generally, Sonic's profits underwhelmed market spectators in the first half. While a reduction in earnings was expected, the 47% reduction in net profit after tax (NPAT) to $202 million was worse than most had prepared for.

The latest set of numbers remained impeded by reduced COVID-19 testing revenue. While the base business experienced revenue growth of 15%, COVID-19 revenue created a $340 million drag on the company.

All the murkiness makes it difficult to value Sonic Healthcare shares. Is the current price-to-earnings (P/E) ratio of 20 times reasonable? What is a likely growth rate for earnings from moving forward? These are challenging questions to find answers to as the company continues to cycle a period of elevated COVID-19 business.

RBC Capital is a broker with a less bearish take on Sonic post-earnings. Despite reducing its forward earnings expectations, the broker maintains a positive view of its future. Moreover, the team mentioned robust organic growth, cost reduction initiatives, and recent acquisitions as encouraging factors.

Still, RBC Capital also cut its Sonic Healthcare share price target from $37 to $34.

Motley Fool contributor Mitchell Lawler has positions in Sonic Healthcare. 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 Sonic Healthcare. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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