Pathology stocks come back to earth: Sonic Healthcare, Healius

Sonic Healthcare (ASX: SHL), Healius (ASX: HLS) and Australian Clinical Labs (ASX: ACL) earnings were pushed years’ ahead thanks to the unprecedented demand for PCR tests.  

Last month, Citi said the Australian PCR testing market was worth $2.17bn in FY22.

However, like many other covid inflated industries, these earnings are by all means artificial and unsustainable - no different to Netflix's subscriber growth or supermarket spend at the height of the pandemic.

Citi expects PCR testing revenues to wind down to $900m in FY23 and even further to $298m by FY24. This suggests a -86% decline between FY22 and FY24.

To add some perspective, Sonic revenues rose 28% in FY21. While its base business (ex-covid testing) grew just 6%.

Covid cases and testing stabilise

New covid cases in Australia surged more than 10-fold from the 1000s in early December to a peak of approximately 175,000 on 12 January. Case numbers have since moderated to a 7-day rolling average of around 28,000 on 7 February.

Lagging behind the jump in cases was the number of average daily tests, peaking just shy of 300,000 on 25 December. Average daily tests have since declined more than -60% to 101,000 on 7 February.

Source: Covid19data.com.au/testing

Surprise, surprise

Coinciding with the peak in daily covid tests, Sonic shares have fallen -20% from late-December highs, down to a 6-month low.

Its peers Healius and Australian Clinical Labs follow the exact same narrative, topping out in late-December and down around -20%.

Sonic, Healius and ACL 12-month share price performance, TradingView