Is the Ramsay Health Care share price in the buy zone?

Is it time for investors to buy Ramsay Health Care Limited (ASX: RHC) with the share price just below its 52-week high?

| More on:
a woman

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The Ramsay Health Care Limited (ASX: RHC) share price has been a strong performer over the last several weeks. Shares in the private hospital operator have risen 11% to $72.30 since the Federal election on 18 May, despite no market sensitive announcement being released since March.

Prior to the election, the Labor Party had announced a policy of putting a 2% cap on premium increases by private health insurers, which was priced into Ramsay's share price.

There were concerns that private health insurers would place additional pressure on private hospital operators such as Ramsay to lower prices in order to compensate for the capped premium increases. This would have materially impacted Ramsay's margins and future profitability. 

The election result has seen a reversal of fortunes in the sector, as business is expected to continue as usual moving forward. Similarly, investors have also become bullish on private health insurers such as Medibank Private Ltd (ASX: MPL) and NIB Holdings Limited (ASX: NHF), which have seen their share prices rise 20% and 32%, respectively, since the Federal election. 

Is this a return to double-digit earnings growth? 

Ramsay has guided for a soft FY19 by its own standards with management reaffirming core earnings per share growth of up to 2% including the Capio acquisition in February. The purchase of Capio is expected to be dilutive to earnings in FY19 and accretive within 2 or 3 years as Ramsay focuses on achieving synergies from the acquisition. 

The market is currently pricing in an acceleration in earnings growth for FY20, with the current earnings per share consensus for FY20 at $3.16. This would represent earnings growth of around 10% over the current FY19 consensus forecast of $2.87, and a return to the double-digit earnings growth that the company has delivered on a relatively consistent basis over the last decade. 

Foolish takeaway

For long-term shareholders, demand from the ageing population is expected to drive growth in the sector and Ramsay continues to maintain a market-leading position in Australia, which remains the largest contributor to group profitability. 

However, at 23 times forward earnings, shares in Ramsay are not cheap and a lot of bullishness is baked in at current prices. As a result, I would view Ramsay as a hold and would wait until the company updates the market on its expectations for FY20 before reassessing. 

Motley Fool contributor Tim Katavic owns shares of Ramsay Health Care Limited. The Motley Fool Australia has recommended NIB Holdings Limited and Ramsay Health Care Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Healthcare Shares

A doctor appears shocked as he looks through binoculars on a blue background.
Healthcare Shares

Ozempic maker Novo Nordisk plunges 22%. What could this mean for Resmed shares?

Novo Nordisk just lost $100 billion in market value.

Read more »

A woman jumps for joy with a rocket drawn on the wall behind her.
Healthcare Shares

Guess which ASX 200 stock is jumping 11% today

Let's see why investors are bidding this stock higher on Wednesday.

Read more »

stockmarket graphic in background with man looking at stockmarket on phone
Healthcare Shares

CSL shares are a buy – UBS

This expert is optimistic on what the business can achieve despite headwinds.

Read more »

a biomedical researcher sits at his desk with his hand on his chin, thinking and giving a small smile with a microscope next to him and an array of test tubes and beackers behind him on shelves in a well-lit bright office.
Healthcare Shares

Broker says this ASX 200 biotech stock is a top buy

Let's see what Bell Potter is saying about this biotech.

Read more »

Cropped shot of an attractive young female scientist working on her computer in the laboratory.
Healthcare Shares

Why CSL shares are a buy today despite the looming Trump tariffs

A leading expert believes CSL shares are still trading for a bargain today. Here's why.

Read more »

A businesswoman pulls her glasses down in shock to look at the bad news on her computer.
Healthcare Shares

Why did the Telix share price just crash 16%?

Investors are sending the Telix share price plunging today. But why?

Read more »

Broker analysing the share price.
Healthcare Shares

Expert: 2 ASX healthcare stocks to avoid before reporting season

Not all healthcare stocks are created equal.

Read more »

A group of people in a corporate setting do a collective high five.
Healthcare Shares

Should I buy Pro Medicus or CSL shares ahead of earnings season?

The ASX healthcare sector may be currently undervalued.

Read more »