It's a day of reckoning for one ASX 200 healthcare stock. The release of an earnings update appears to have caught investors of this medical diagnostic company off guard today.
The Sonic Healthcare Ltd (ASX: SHL) share price is being eviscerated, falling 6.1% to $25.00 in afternoon trade. More than $90 million worth of shares have traded hands as shareholders decide to bounce out of the stock following the disappointing update.
Only one other company in the S&P/ASX 200 Index (ASX: XJO) is faring worse than Sonic today. Sonic's sheer size and large fall mean the ASX healthcare sector is the second-worst performing sector, trailing behind communication services amid Telstra's job cut plans.
Inflation and currencies cut into earnings
With two months left of the full year, Sonic had to come clean on how the final numbers were shaping up.
Previously, the pathology, radiology, and laboratory business had guided earnings before interest, taxes, depreciation, and amortisation (EBITDA) of A$1.7 million to A$1.8 billion for FY24. On its own admission, the lower bound looked more likely at the time.
Today, the Sullivan Nicolaides owner now expects even less. The new full-year guidance is for A$1.6 billion in EBITDA on revenues of $8.9 billion.
The earnings growth of this ASX 200 healthcare stock has underperformed management's expectations. Inflationary pressures, unfavourable currency exchange rates, and delayed margin improvement initiatives have taken their toll in the second half.
Sonic Healthcare CEO Dr Colin Goldschmidt expanded on the situation leading to today's revision, stating:
The 2024 financial year has been one of transition for Sonic Healthcare, moving away from pandemic conditions into a more normal business environment. Our current robust topline growth, organic and non-organic, in a setting of inflationary cost pressures, have combined to delay the completion of our programs to align labour costs more closely with post-pandemic conditions. These unique business conditions have also made forecasting our earnings unusually difficult this year.
Meanwhile, with the belief much of the headwinds will taper in FY25, Sonic guided for A$1.7 billion to A$1.75 billion in EBITDA for the next financial year. This would represent a 7.8% increase from FY24 at the midpoint.
Is this ASX healthcare stock a buy?
Before today's update, Sonic Healthcare shares were being touted as a buy by some analysts.
For example, the Morgans team held a $34.94 price target on the ASX 200 healthcare stock based on 'near/medium term drivers supporting underlying profitability'. Toby Grimm of Baker Young labelled Sonic a hold while believing FY2024 could be the bottom for earnings.
The Sonic Healthcare share price is now down 31% over the past year. Shares in the company are trading at a trailing price-to-earnings (P/E) ratio of 23 times. This is in line with the average for the global healthcare industry.
