One of the biggest movers on the ALL ORDINARIES (Index: ^AXAO) (ASX: XAO) today has been Capitol Health Ltd (ASX: CAJ).
The diagnostic imaging company's shares are up 17% to 13.5 cents at the time of writing, bringing its two-day gain to a massive 20.5%.
The reason for this gain is all down to yesterday's Mid-Year Economic and Fiscal Outlook which revealed that the Federal Government plans to defer changes to the bulk-billing incentive program for diagnostic imaging until 1 July 2017 to allow for further consultation.
This is a big boost for Capitol Health which had previously advised that the changes would negatively impact revenue by between 5% and 7% in FY 2017. Pleasingly management now anticipates a jump in revenue growth in the second half of the current financial year.
However, management has warned that "the lingering uncertainty as to the exact timing and nature of cuts may further extend the recent volatility seen in referral patterns and patient volumes." Because of this it hasn't been able to fully calculate the exact impact to revenue, if of course there will ultimately be one.
Clearly this is potentially very positive news for the company, but does it make it a buy?
At just over 10x full year earnings, Capitol Health does look remarkably cheap. But the overall uncertainty over its future performance means I couldn't justify an investment today.
I would much sooner invest in healthcare companies such as ResMed Inc. (CHESS) (ASX: RMD) and Cochlear Limited (ASX: COH). Although they aren't cheap in comparison to Capitol Health, I believe the price justifies the quality of their earnings and growth prospects.
