Sonic Healthcare Ltd (ASX: SHL) has hit its lowest share price in years. On Tuesday the prominent ASX 200 share closed lower on $20.89, which brings the loss this year to 23%.
Sonic Healthcare is a global diagnostics and pathology powerhouse. The company operates all over the world, with its main operations in Australia, Europe and North-America.
Serious COVID hangover
Since the end of 2021, when Sonic Healthcare's share price peaked at nearly $47, the company has suffered from a serious COVID hangover. The slide of the share price underscores a return to reality for the healthcare company.
During the COVID boom Sonic Healthcare benefitted massively from testing demand. Now, with testing levels having returned to pre-pandemic levels, Sonic's core pathology business must drive growth in a more volatile global economy.
The big sell-off
Sonic Healthcare is the seventh largest ASX 200 healthcare share by market capitalisation. Its underlying business is solid with a healthy balance sheet, it has a bright future fuelled by an ageing global population and it reported sound full year results. The company has also used its strong cash flows – bolstered during COVID – to fund acquisitions and investment in digital pathology and AI, which could drive future growth
In August it revealed a net profit of $514 million, up 7%, and revenue of $9.645 billion, up 8%. The market wasn't too impressed with these numbers. As a result, investors have been offloading the healthcare share since the August earnings season. Broader macro-economic risks, such as global uncertainty, inflation and rising labour costs have amplified investor caution toward capital-intensive diagnostic companies.
How do analysts rate Sonic Healthcare?
Analysts are broadly positive, with the majority rating the ASX 200 share a strong buy or hold. The average 12-month price target is $27.85, which indicates a 33% upside.
Bell Potter is recommending Sonic Healthcare to clients for dividend reasons, citing its growing earnings and increasing yields. Bell Potter is forecasting partially franked dividend yields of approximately 5% each year for the next three years.
In a recent report Bell Potter comments:
Sonic Healthcare is a stock that looks attractive on a dividend screen, with rising yields and sustained earnings growth supporting the security of income for investors.
The broker has a buy rating and $33.30 price target on its shares.
We expect the operating environment for SHL to stabilise, with structural population trends providing a tailwind for the business and management's efficiency initiatives beginning to drive margin improvement. Looking ahead, the forecast return to earnings growth in FY26–28 appears relatively defensive, underpinned by SHL's geographically diverse revenue base and the non-cyclical nature of healthcare spending.
