Sigma Healthcare Ltd (ASX: SIG) shares have been in fine form since merging with Chemist Warehouse.
But having climbed to lofty levels, is it now too late to invest? Let's see what analysts at Macquarie Group Ltd (ASX: MQG) are saying about this popular stock.
What is being said?
Macquarie notes that Sigma Healthcare has released its full year results this week and delivered strong numbers.
The broker's key takeaway from the result was the strong margins and cash generation of the combined business. It said:
The most important insight from the result was the business model metrics of the combined group! Gross profit margin is 24.1%, CODB represents 10.1% of revenue with a resultant EBIT margin of 13.9%. The group is highly cash generative with operating cash flows >$0.5bn and cash conversion of 83%.
Looking ahead, Macquarie believes that its earnings will increase at a very strong rate in the coming years as it grows both organically and internationally. It said:
SIG EBIT is expected to double between 2025-28 as it exploits organic and international growth opportunities. Domestic store growth of +6%, NPD in own or exclusive private label (<10% in FY25) and synergies through scale (now $100m) are important components of SIG's "four pillars of growth".
Marketing and media strategies (Marketing, Advertising revenue $0.4bn) are built around a highly visible media property. CW will lead the market in implementing new strategies such as CW partnering with Snapchat to promote its 'Mayhem' sale using the app's new advertising format, First Snap (the target customer was Gen Z).
Where next for Sigma Healthcare shares?
According to the note, the broker believes that the company's shares are fully valued now.
In response to its full year results, Macquarie has retained its underperform rating with a trimmed price target of $2.50.
Based on its current share price of $3.09, this implies potential downside of 19% for investors over the next 12 months.
Commenting on its underperform rating, the broker said:
Retain Underperform. SIG continues to deliver on its growth strategy, with a market-leading offer, and strong execution across the topline and bottom line. However, at a 1-year forward P/E of 48x, we see valuation as stretched.
Earnings changes: First result as a consolidated group. Our estimates have adjusted accordingly, with EPS changes of -2%/0%/+2% in FY26/27/28E. Catalysts: Clarity on consensus expectations following this result; Macquarie HFCD and Fonto data.
