After a tough few years adjusting to the post-COVID landscape, one ASX 200 healthcare share may finally be ready to turn the corner — and Bell Potter believes now could be the time to buy.
That stock is Sonic Healthcare Ltd (ASX: SHL), a global pathology leader that the broker believes is quietly positioned for a return to earnings growth, margin recovery, and longer-term innovation-driven upside.
Time to buy this ASX 200 share
Bell Potter notes that Sonic Healthcare operates a wide-reaching diagnostic network across Australia, Europe, and the United States. It holds leading positions in markets such as Germany, Switzerland, the UK and Belgium, and ranks as the third-largest player in the US pathology market.
The broker highlights that pathology remains a defensive, essential healthcare service with mandated growth, and Sonic's international presence — built through decades of acquisitions — gives it scale and depth in a high-barrier industry.
While recent years have been marked by a slowdown in COVID-related testing revenues, Bell Potter believes FY 2025 will mark a clean reset and a return to growth. It said:
SHL should return to growth, with c.7.9% / c.9.1% / c.9.7% revenue, EBITDA and Normalised NPAT growth. We expect EBITDA margins to begin to recover in FY25 and deliver c.110bp improvement through to FY27. Growth is being driven by right sizing the business, the impact of acquisitions in FY24 and normalising organic operations post COVID. Our estimates are broadly in line with consensus.
What else?
Beyond traditional diagnostics, Bell Potter points out that Sonic is also investing in its future growth engines.
The company has partnerships with PathologyWatch and Franklin.ai, both focused on improving the speed and accuracy of diagnostics through AI. While early-stage, these projects could enhance Sonic's operating leverage and competitiveness across global markets.
Genetic testing is another area of interest. Currently accounting for less than 10% of revenue, it is forecast to grow at a compound annual growth rate (CAGR) of approximately 22% over the next decade, creating a long-term revenue tailwind.
Big return potential
Bell Potter sees significant value on offer with the ASX 200 share.
The note reveals that it has initiated coverage on Sonic Healthcare with a buy rating and price target of $33.70. Based on its current share price of $26.22, this implies potential upside of almost 29% over the next 12 months.
In addition, the broker expects an unfranked dividend yield of 4.2% over the period. This boosts the total potential return comfortably beyond 30%.
Bell Potter concludes:
We adopt a blended valuation across DCF, EV/EBITDA & PE methodologies. The TP represents a c.28% premium to the current price, in addition to an expected dividend yield of c.4%. SHL typically trades at a c.27% premium to the XJO, but this has narrowed to c.13%. Short-term catalysts include completing the LADR acquisition and the forthcoming FY25 results to at least meet consensus expectations.
