RBC Capital Markets has released a new report on the Australian-listed healthcare sector, upgrading five major stocks to an outperform rating in the process.
The broking house said healthcare had performed "generally much better than we had feared" across the August reporting season.
They added:
A combination of revenue beats and cost control drove earnings beats for most companies and we are now expecting positive earnings growth across the sector. While most of the sector has enjoyed a re-rating over the past 2 months, we believe a number of stocks could re-rate even further given their earnings growth outlook, appealing relative valuations and attractiveness of the healthcare sector in light of macroeconomic uncertainty.
As a result of this positivity, RBC has upgraded five stocks to an outperform rating and maintained that rating on one more.
Let's see who they like.
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CSL Ltd (ASX: CSL)
RBC said the recent result showed that CSL was regaining market share in the key immunoglobulin sector.
The broker said they now believed that "growth in the Behring business can offset the weak outlook in the Seqirus and Vifor business, and enable the company to deliver mid-single digit EPS growth for the next 3 years''.
While these growth rates were below historical levels, RBC said they were reasonable compared to other Australian large-cap stocks.
RBC has a price target of $213 on CSL shares.
Resmed Ltd (ASX: RMD)
The sleep apnoea device company delivered an in-line result, RBC said; however, there was more focus on capital management.
The broker is factoring in $1.5 billion in share buybacks per year out to FY31.
RBC has a price target of $262 on Resmed shares.
Ramsay Healthcare Ltd (ASX: RHC)
RBC said Ramsay was being well run, with its recent result showing good revenue growth and cost control.
They have valued the company on a demerger basis and believe such a strategy would create value.
RBC has a price target of $68 on Ramsay shares.
Fisher & Paykel Healthcare Corporation Ltd (ASX: FPH)
RBC said this company's trading update revealed a strong start to the year and an upgrade to FY27 guidance.
The broker added:
We expect FPH's hospital revenues to continue growing in mid-to-high teens in FY27-FY29 which will enable the company to deliver double digit group revenue growth. FPH has the fastest growth profile across our coverage and we now believe FPH has the best price to earnings growth ratio across our coverage.
RBC has a price target of $52 on Fisher & Paykel shares.
Nanosonics Ltd (ASX: NAN)
RBC said Nanosonics had a mixed result with revenues missing expectations but earnings beating.
The broker said the Trophon business was growing and profitable, and they believed the share price was currently too bearish.
RBC has a price target of $3.75 on Nanosonics shares.
The broker also has an outperform rating on Integral Diagnostics Ltd (ASX: IDX) with a price target of $3.20.
