The Sonic Healthcare Limited (ASX:SHL) share price rose today after it reported respectable results, with earnings per share and dividends both up. The company is also on track to meet its full-year guidance. Here's what you need to know:
- Revenue rose 5% to $2,575 million
- Earnings Before Interest, Tax, Depreciation and Amortisation (EBITDA), rose 6% to $431 million
- Net Profit After Tax (NPAT) rose 10% to $206 million
- Earnings Per Share rose 7% to 49.2 cents per share
- Dividends of 31 cents per share announced
- Expansion into the USA via joint venture
- On track to meet previously provided guidance of 5% EBITDA growth on constant-currency basis in 2017
So What?
Another good result from Sonic, although we can see that the company's earnings growth remains moderate as it becomes incrementally more difficult to 'move the dial' at this $9 billion behemoth. The recently announced joint venture in the US carries some promise, as does Sonic's aim to offer centralised outsourced laboratory services to US hospitals.
Sonic estimates that more than half of the US's $50 billion pathology market is comprised of 'hospital system laboratories', i.e. hospitals do their own pathology work on-site. Outsourcing to a centralised specialist is a model that has proven effective in Australia and Sonic expects it can offer greater efficiency and cost savings.
This is what Sonic is good at, and the US appears a promising growth prospect. However I expect it will take several years for Sonic to build up scale and negotiate agreements with hospitals and health insurers, given the differences in our healthcare systems.
Now What?
Sonic is a multifaceted organisation. Much of its growth comes from acquisitions and there is always the potential for regulatory changes to hurt business in its target markets – although this risk is mitigated somewhat by the diversity of its global operations. With a majority of its earnings coming from overseas and a long track record of growing earnings, I think Sonic has a lot to offer long-term investors.
However, readers should also be aware that the company's growth is likely to remain modest in the future, and is driven by acquisitions and cost savings. This makes it important not to overpay. I'd prefer to buy the company at a lower price in order to give me a better chance at a good investment outcome.
