The S&P/ASX 200 Index (ASX: XJO) stock Ramsay Health Care Ltd (ASX: RHC) has seen its fair share of pain in the last two and a half years. But there's a chance it could recover from its current valuation malaise.
If we look at the chart above, we'll see that Ramsay's share price has dropped by 55% since 22 April 2022. On Monday, it hit a 52-week low of $37.06.
Falling businesses are not normally appealing investments, but at some point, they can fall too far and be undervalued.
One broker has indicated that they believe the ASX 200 stock could be undervalued.
How much could the Ramsay share price recover?
Broker UBS currently has a price target on the ASX healthcare share that implies it could rise 20% from where it is right now.
A price target is where broker analysts believe the share price of a business could be in 12 months from the time of the investment call. It's important to note that a price target is not a guaranteed return; it's just where the broker thinks the valuation could go after taking various factors into account.
UBS currently has a price target of $45.10 on the ASX 200 stock. That implies the Ramsay Health Care share price could rise by 20% in the next year. Of course, that may be little comfort for long-suffering shareholders as Ramsay Healthcare was trading above $45.10 as recently as August 2024.
Why is UBS positive on the ASX 200 stock?
One of the most obvious and positive things to point out is that the broker is forecasting that net profit can rise each year from the 2026 financial year onwards.
UBS is projecting that the private hospital operator could generate $270 million of net profit in FY25, then achieve $353 million of net profit in FY26, $451 million of net profit in FY27, $507 million of net profit in FY28 and $581 million of net profit in FY29.
After a difficult last few years, rising profit would be a significant positive for the business.
UBS said in a note that Ramsay's strategy for developing (and recovering margins in) the Australian business includes a renewed focus on Emergency Departments as a "front door".
The broker also said in its note that Ramsay's digital and data projects are expected to be operating profit (EBIT) positive in 2028. Some of those early savings will be reinvested in order to fund other projects in the program.
While UBS noted that Ramsay's operational costs are still above pre-COVID levels, the ASX 200 stock's management indicated that problems caused by staff shortages over the past couple of years are "continuing to abate and impacts are now minimal". UBS also said that Ramsay is now, in places, "where it can look to service extra demand (more theatre lists, longer hours etc)".
The Ramsay share price may not seem like a bargain to some investors, but the prospect of it doubling FY25's net profit by FY29 could be compelling.
