Sonic Healthcare Ltd (ASX: SHL) shares are a popular option for investors in the healthcare sector.
The ASX 200 stock is a leading healthcare provider with specialist operations in laboratory medicine, pathology, radiology, general practice medicine, and corporate medical services.
The company highlights that its diagnostic and clinical services are provided by more than 2,200 pathologists, radiologists, and other clinicians, and approximately 18,000 employees in science-based roles, including radiographers, sonographers, technicians and nurses.
Clearly, it is an impressive operation. But is this ASX 200 stock a buy? Let's see what Ord Minnett is saying about Sonic Healthcare.
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What is Ord Minnett saying about this ASX 200 stock?
Unfortunately, the broker thinks that the company could be negatively impacted by proposed changes to medical fees in Germany. It said:
Ord Minnett has reviewed the medium-term outlook for Sonic Healthcare (SHL) given the increasing likelihood of reforms to Germany's Gebührenordnung für Ärzte (GOA), the medical fee schedule for patients with private health insurance that covers a wide range of consultation fees and outpatient services, including, in Sonic's case, laboratory fees.
These reforms pose a risk to Sonic given GOA reimbursements account for almost 1/3 of its German division's revenue, and equate to nearly 8% of group revenue, with drafts of the reforms aiming for a cut in laboratory fee reimbursements, on average, of 29% (although we expect this will be negotiated down as the legislation is developed and we model 20% in our numbers). The timing and details of mooted changes to the GOÄ are uncertain, although our talks with the industry indicate likely implementation from January 2028.
Should you buy, hold, or sell?
In light of this uncertainty and Sonic's lack of organic growth, the broker has put a hold rating and $24.00 price target on its shares.
However, this still implies potential upside of 18% for investors, which is better than what some buy recommendations offer.
Commenting on its recommendation, Ord Minnett said:
Post our review, we have made very minor changes to our near-term EPS forecasts and our target price remains at $24.00. Ord Minnett finds it difficult to be constructive on Sonic given its inability to generate meaningful organic growth even after $3.3 billion of acquisitions over the past seven years.
There are undoubtedly some benefits from M&A, but other factors, such as price cuts and customer quotas specific to healthcare in its various markets, along with run-of-the mill costs such as wages and rents, appear to have constrained any meaningful earnings growth. This view leads us to maintain our Hold recommendation despite the apparent value on offer.
