Healthcare stocks are known for their defensive characteristics, consistent growth, and often dominant market shares. Surgical glove and condom manufacturer Ansell Limited (ASX: ANN) fits this bill and has more than doubled investors money over the past five years. Here are three reasons why Ansell is a great long-term investment.
Ansell has grown earnings per share in 9 of the past 10 years
Ansell's management team have increased earnings per share (EPS) from 39.9 cents in 2004 to 104.2 cents in 2013, with 2007 the only year to register negative earnings per share growth, of around 9%. Ansell has also grown its dividend payout in each year, from 13 cents per share in 2004 to 38 cents in the 2013 financial year.
In 2014 it is forecasting high-single-digit earnings and revenue growth, which should also extend to the dividend. Ansell reports in US dollars, so the Australian dollar denominated earnings should grow by more than 10%.
Ansell has a plan for growing revenue
In the 2013 financial year, Ansell missed EPS guidance as a result of "challenging global conditions". Like many companies, in the absence of significant revenue growth, Ansell focused heavily on reducing costs to grow profit. Margins were subsequently improved from 10.6% to 11.8% due to lower raw material costs and a shift to higher margin product sales.
The focus in 2014 has been growing revenue through acquisitions and new product releases. While $300 million was originally slated as the target spend, the company recently splashed out over $600 million for US glove maker BarrierSafe. Transaction costs will impact the 2014 financial year, but a 17% boost in revenue and low-to-mid single digit earnings growth will not be realised until the following year.
Ansell's PE Ratio has returned to average levels
Ansell's share price has fallen 15% since September last year following the disappointing 2013 financial year result. This has taken Ansell's forward price-to-earnings ratio back to around 15, which is in line with its long-term average. It should be much lower in 2015 when the impact of the BarrierSafe acquisition is included into calculations.
Foolish takeaway
Now looks a good time to invest in Ansell based on a cheaper entry point, a big acquisition to improve US market share, and an expected 20% boost in revenue and 5-10% boost in earnings from organic growth and acquisitions.
