The Sonic Healthcare Ltd (ASX: SHL) share price is down more than 40% from its peak in late 2021, as the chart below shows. However, the company is working on building blocks to boost its longer-term performance.
The business has a significant pathology market position in a number of countries including Australia, the UK, the USA, Germany, Switzerland, New Zealand and Belgium.
What went wrong for the company in the last few years?
It was a significant player in the COVID-19 testing space, it carried out millions of tests and generated significant earnings from that period. But, COVID-19 has drifted into history, and so have the company's COVID earnings. As a result, the market isn't as excited about the business as it once was.
However, Sonic is delivering underlying improvements through organic growth and acquisitions.
The FY25 half-year result saw revenue growth of 8% to $4.67 billion (with organic revenue growth of 6.1%), operating profit (EBITDA) growth of 12% to $827 million and earnings per share (EPS) growth of 15% to 49.2 cents.
Sonic AI involvement
Human biology doesn't really change, but the invention of artificial intelligence for the healthcare space could be a game-changer. Though at this stage, it hasn't been quantified how much it could boost profitability, so it's difficult to gauge for Sonic Healthcare shares.
Sonic's CEO and managing director said the use of artificial intelligence in pathology and radiology is expected to "cause step-changes in efficiency, quality and capacity in the coming years, and Sonic will be a major beneficiary."
The company has an 18% stake in Harrison.ai and established a joint venture called Franklin.ai to develop best-in-class AI diagnostic tools for pathology. Sonic owns 49% of Franklin.ai directly and another 9% indirectly through its stake in Harrison.ai.
The first completed AI product, Prostate Digital, which was deployed for clinical evaluation in Sonic's Sydney laboratory commenced in the second quarter of FY25. Franklin.ai's products are expected to be marketed globally, in addition to being used within Sonic's laboratory operations.
Harrison.ai continues to progress its radiology decision-support AI solution called Annalise.ai, which has launched chest X-ray and CT brain products, with contract wins in Australia, Asia, Europe and the UK. These products are being used everyday in Sonic's radiology division.
Sonic has also invested in PathologyWatch, an end-to-end digital pathology platform, incorporating a laboratory information system, digital pathology viewer, image storage, and AI algorithms is helping accelerate Sonic's transition to digital pathology and related use of AI globally.
Final thoughts on the Sonic Healthcare share price
Overall, it could significantly help both Sonic's profitability and customer outcomes.
The broker UBS is projecting Sonic Healthcare could generate net profit after tax (NPAT) of $536 million in FY25 and that this could grow to $885 million by FY29, a rise of 65%. I think the profit could rise faster if its AI initiatives go well.
