When markets bounce, will healthcare heavyweights be first to pounce?
Brokers believe ASX healthcare giants like CSL, Cochlear and Ramsay are poised to rebound
Source: iStock
Mentioned
KEY POINTS
- The S&P/ASX 200 Health Care Index has underperformed the broader market
- Brokers believe major healthcare names like CSL are poised for upside
The healthcare sector has been caught up in the broad-based pivot away from growth stocks.
The S&P/ASX 200 Health Care Index is down -15.4% year-to-date. Well below the -7.3% decline from the ASX 200.
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ASX 200 Health Care Index 3 month chart
The local healthcare scene is dominated by a small handful of heavyweight names. In this article, we’ll evaluate how these stocks performed during reporting season and their future growth prospects.
CSL: the tide is turning
Healthcare darling CSL (ASX: CSL) has not been immune to the impacts of covid, with its core franchise, the immunoglobulin portfolio, facing industry-wide constraints in collecting plasma.
Shares in the biotech giant rallied on better-than-expected results, up 8.5% on the day of its half-year FY22 results. Some notable takeaways include:
Net profit of $1.76bn, down -5%
Net profit forecast for FY22 to be between $2.15bn to $2.25bn
Down -5.3% to -9.4% compared to FY21
Improvement in plasma volumes collected which “will underpin stronger immunoglobulin and albumin sales going forward”
Six major Australian brokers cover CSL. The consensus is a Buy rating with a $317.4 target price (22% upside).
Citi was the latest broker to have covered the stock. The broker notes the fallout and underperformance of healthcare stocks following the Russia-Ukraine war.
Citi reaffirmed the view that CSL is positioned to benefit in a post-pandemic world, and expects the market darling to resume its track record of growth. Citi’s forecast indicate earnings-per-share (EPS) growth of circa 23% in FY23.
Cochlear: revenue growth and costs in check
Cochlear (ASX: COH) has held up better-than-most, down just -3.7% year-to-date.
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Cochlear versus ASX 200 price chart
The company’s half-year FY22 results ticked several boxes including:
Revenue of $815.3m, up 10%
Underlying net profit of $157.5m, up 26%
Interim dividend per share of $1.55, up 35%
Gross margins improved 2 percentage points to 19%
Cochlear said it expects FY22 net profit to be between $265m and $285m, a 13-22% increase compared to FY21.
Six major Australian brokers cover Cochlear. The consensus is a Buy with a $225.7 target price (5% upside).
Post-earnings commentary from Credit Suisse said that net profit beat estimates as a result of strong top-line growth and cost control.
The broker flagged that lingering restrictions on elective surgery and labour shortages could impact second-half earnings.
Credit Suisse expects Cochlear’s earnings momentum to continue in the near-term, with forecasted FY23 EPS growth of 14%.
Ramsay: volatility remains
Ramsay Health Care (ASX: RHC) had already set the stage for a sharp decline in first-half FY22 earnings after a dire November trading update.
Key takeaways from the first-half include:
Revenue of $6.7bn, up 1.2%
Net profit of $158.9m, down -30%
Elevated costs, notably staffing costs due to isolation orders and increased use of protective equipment
Six major Australian brokers cover Ramsay. The consensus is a Buy with a $69.68 target price (16% upside).
Contrary to the upside, Ramsay has flagged that the second-half will continue to be impacted by covid restrictions impacting hospital activity levels.
Costs are expected to remain elevated through to FY23.
