Testing rates for coronavirus have rapidly expanded in the US and Europe. Sonic Healthcare has around 70% earnings exposure to the northern hemisphere, Credit Suisse points out.
The broker calculates the margins earned on these tests far exceed historical averages. Operating earnings estimates are raised by 13% for FY21, to account for the stronger margin and increased testing.
The broker expects a -$1bn reduction in net debt in FY21 and a net cash position in FY23.
The company is expected to use excess capital to pursue bolt-on acquisitions in the fragmented anatomic pathology market in both US and Germany. Outperform retained. Target rises to $39 from $38.
Sector: Health Care Equipment & Services.
Target price is $39.00.Current Price is $34.66. Difference: $4.34 – (brackets indicate current price is over target). If SHL meets the Credit Suisse target it will return approximately 11% (excluding dividends, fees and charges – negative figures indicate an expected loss).
