Strong growth in healthcare service provision in August signals good news for healthcare stocks, with Macquarie analysts tipping Integral Diagnostics Ltd (ASX: IDX) shares to pile on more than 20% in gains.
Medicare statistics for August, compiled by Macquarie, show that pathology volumes grew by 7% year over year while imaging volumes were up 6%.
This is good news for Integral Diagnostics, which provides diagnostic imaging services such as magnetic resonance imaging (MRI), ultrasound, and radiography at 145 sites across Australia and New Zealand.
Macquarie said its "key pick remains IDX, for which we expect cost synergies, MRI deregulation and GP bulk billing incentive to support earnings per share growth''.
Key downside risks to our thesis on IDX primarily relate to weaker-than-expected volume growth and/or operating cost growth ahead of our expectations. Downside from the… merger would be less-than expected cost synergies from the group.
Macquarie has an outperform rating on Integral Diagnostics shares and a price target of $3.40, compared to the current price of $2.81.
The broker has a neutral rating on Australian Clinical Labs Ltd (ASX: ACL), although it flags that there is likely still some upside to that stock. Its price target is $2.90, compared with the current price of $2.49.
Merger synergies better than expected
In late 2024, Integral Diagnostics merged with Capitol Health in a scrip-based deal, which valued Capitol at $413 million.
While releasing the company's full-year financial results in August, Integral Managing Director Dr Ian Kadish said the integration of the company was delivering better than expected cost savings.
FY25 was a transformational year for the company, including the merger with Capitol Health which was successfully completed on 20 December 2024. The integration of Capitol Health has proceeded to plan, with $7 million of synergies realised in FY25, representing annualised synergies of $14 million, significantly exceeding initial expectations of at least $10 million.
Integral Diagnostics declared a fully franked final dividend of 4 cents per share, bringing the full year payout to 6.5 cents per share, with the final dividend to be paid on October 3.
The company said in August that its focus for the current financial year was to drive organic earnings growth, "including relentless focus on radiologist recruitment and productivity, together with operational efficiency''.
It would also seek to accelerate the use of artificial intelligence and teleradiology.
