The next ASX sector in a post COVID-19 earnings upgrade cycle

Listed medical and diagnostic facilities operators are outperforming the S&P/ASX 200 Index (Index:^AXJO) today as the floodgates to elective surgeries are swung open.

| More on:

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

Listed medical and diagnostic facilities operators are outperforming the market today as the floodgates to elective surgeries are swung open.

The Ramsay Health Care Limited Fully Paid Ord. Shrs (ASX: RHC) share price and Sonic Healthcare Limited (ASX: SHL) share price jumped 2.7% each in the last hour of trade to $63.80 and $27.09, respectively.

The Healius Ltd (ASX: HLS) is trailing behind with a 1.9% increase to $2.40, but that's still ahead of the 1.3% gain by the S&P/ASX 200 Index (Index:^AXJO).

Consensus earnings upgrade candidates

These companies could see a big boost to earnings as the Australian Financial Review reported on the upcoming "hidden wave" or elective surgeries and tests.

The federal government announced that it was loosening restrictions on elective surgeries as the country appears to have the COVID-19 pandemic under control.

The clampdown on non-life-threatening procedures was to ensure that our hospital system had the capacity to cope with the potential spike in emergency coronavirus patients.

Pent-up demand to hit

The warnings and response from the government to COVID-19 had another unintended consequence. Australians started putting off regular check-ups as they were worried about clogging up our health system and putting themselves in close proximity with possible COVID-19 patients.

The big drop in attendances and elective surgeries pressured the earnings of private hospitals and clinics, while falling demand for diagnostic tests (other than for coronavirus) impacted on Sonic.

However, that's about to change and shares in Ramsay, Sonic and Healius could regain the lost ground from February.

Six-month backlog

Pent-up demand from deferred medical checks and minor procedures are likely to force medical facilities to operate overtime over many months.

The six-week clampdown on elective surgeries created a backlog of nearly 400,000 cases, according to consultant surgeon and senior lecturer at the University of Newcastle, NSW, Dr Peter Pockney.

He co-authored a major study on the return of elective surgery in 190 countries and he was reported in the AFR as saying that "it would take 22 weeks to clear if hospitals increase the number of surgeries performed each week by 20 per cent compared to pre-pandemic activity".

Counting the costs

Elective surgeries are only one side of the problem. Australians have also put off cancer screening. The AFR also quoted the chief executive of Cancer Council Australia, Professor Sanchia Aranda, estimating that one in 10 people may have delayed checks during the lockdown.

If these delays lasted for six months, Professor Aranda believes 7,000 cancers will be picked up later. The later a cancer is detected, the higher the chance of death.

The only potential problem I see now is the waiting time to get in to see your doctor.

Not taking drastic action on COVID-19 costs lives, but acting aggressively to contain the pandemic is likely to be just as, if not more costly.

Motley Fool contributor Brendon Lau has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Ramsay Health Care Limited and Sonic Healthcare 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 Share Gainers

Man with rocket wings which have flames coming out of them.
Share Gainers

Guess which ASX All Ords stock just rocketed 34% on strong earnings growth

Investors just sent this ASX All Ords stock surging 34%. Here’s what’s happening.

Read more »

A businessman looking at his digital tablet or strategy planning in hotel conference lobby. He is happy at achieving financial goals.
Share Gainers

Why Dimerix, Newmont, Regal Partners, and Titomic shares are storming higher

These shares are having a good finish to the week. Let's see why.

Read more »

Two happy excited friends in euphoria mood after winning in a bet with a smartphone in hand.
Share Gainers

Why Fortescue, Lynas, PEXA, and Regis Healthcare shares are charging higher

These shares are having a strong session on Thursday. But why?

Read more »

A young man talks tech on his phone while looking at a laptop. A financial graph is superimposed across the image.
Share Gainers

Why Capricorn Metals, Insignia, Perseus Mining, and Qoria shares are storming higher

These shares are having a strong session on Tuesday. But why?

Read more »

A man clenches his fists in excitement as gold coins fall from the sky.
Share Gainers

Why Amaero, AMP, Block, and South32 shares are racing higher today

These shares are starting the week on a positive note. But why?

Read more »

Ten happy friends leaping in the air outdoors.
Share Gainers

Here are the top 10 ASX 200 shares today

It was another momentous session for ASX shares this Friday.

Read more »

Overjoyed man celebrating success with yes gesture after getting some good news on mobile.
Share Gainers

Why BHP, Catalyst Metals, Mesoblast, and Pilbara Minerals shares are shooting higher

These shares are ending the week with a bang. But why?

Read more »

Doctor doing a telemedicine using laptop at a medical clinic
Healthcare Shares

The Mesoblast share price just rocketed 38%! Here's why

ASX investors just sent the Mesoblast share price up 38%. But why?

Read more »