Pathology stocks come back to earth: Sonic Healthcare, Healius

Tue 08 Feb 22, 6:12pm (AEDT)

Key Points

  • PCR testing volumes are expected to decline -86% between FY22 and FY24
  • Pathology stocks have fallen at around -20% since December all-time highs

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.

Testing in Australia for COVID-19


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%.

SHL Chart 2022-02-08

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


What do brokers think?

Macquarie maintained a Neutral rating for Sonic Healthcare with a $42.40 target price (12% upside).

The broker flagged that the omicron variant has shifted testing away from PCRs and more towards RATs.

Macquarie expects less revenue to come from covid testing as volumes and reimbursement rates moderate.

Written By

Kerry Sun

Content Strategist

Kerry holds a Bachelor of Commerce from Monash University. He is an avid swing trader, focused on technical set ups and breakouts. Outside of writing and trading, Kerry is a big UFC fan, loves poker and training Muay Thai. Connect via LinkedIn or email.

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