Owning Sigma Healthcare Ltd (ASX: SIG) shares means gaining exposure to several healthcare businesses, including Chemist Warehouse. After dropping 7% since the November peak, I think it's worth asking whether the business is a buy-the-dip opportunity.
There are several other businesses in the portfolio, including Amcal and Discount Drug Stores. It's also a wholesale supplier to other pharmacies.
Chemist Warehouse has pharmacies in several other countries, including New Zealand, Ireland and Dubai. It's also working on Chinese locations.
Let's take a look at whether this is a good time to invest in Sigma Healthcare shares.
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Expert views on Sigma Healthcare shares
Broker UBS currently has a buy rating on the business because Chemist Warehouse is on course to drive "multi-year double-digit" earnings per share (EPS) growth.
UBS notes that the health and beauty market is growing at an estimated 6% per year, and Chemist Warehouse is expected to deliver continued market share gains.
The broker said that the company's sales growth, driven by both like-for-like (LFL) sales growth and store network expansion, is delivering operating leverage. The operating profit (EBIT) margin is also benefiting from a rising gross profit margin and the ongoing synergies between Chemist Warehouse and the rest of the Sigma Healthcare business.
UBS believes the Sigma Healthcare share price and relatively high price/earnings (P/E) ratio are justified because of the potential EPS growth and the fact that it's capital-light, making the risk-reward dynamic attractive.
Analysts at UBS predict Chemist Warehouse's LFL sales growth could accelerate from 10.9% in FY25 to 13.2% in FY26, then a further 10.2% LFL growth in FY27. After that, high single-digit LFL sales growth is expected for FY30.
Tailwinds that could drive the industry and the company
Sigma Healthcare shares could benefit from both industry tailwinds and ongoing market share gains in the years to come, according to UBS.
The broker said there are multiple industry tailwinds, including:
(1) ageing population; (2) health prioritisation; (3) higher value medicines; and (4) greater category participation and spend per consumer in health & beauty.
On the prospect of a higher market share, UBS said:
Chemist Warehouse is likely to continue to gain share as an everyday retailer given its leadership in price & range, regulatory advantages, compliance and omni-channel capabilities. Chemist Warehouse is forecast to maintain 33 store openings as per its historical average due to: (1) franchisor support; (2) acquisitions; and (3) international growth in existing and possibly new markets.
Price target on Sigma Healthcare shares
UBS currently has a price target of $3.40 on the ASX healthcare share, implying a potential rise of 16% over the next year. The broker is also expecting the company to pay an annual dividend of 4 cents per share in the 2026 financial year.
