What a year it's been for the Australian healthcare sector in 2021. It has had to come to grips with the lasting effects of COVID-19, and has experienced a wave of disruption and innovation at levels not seen before. Meanwhile, surging case numbers have plagued the operations of many ASX-listed healthcare names.
Consequently gains and losses have been non-discriminatory in ASX healthcare shares in 2021. Several large-cap names have struggled, whilst the small-cap division of the sector has shown equally choppy results.
However, as the effects of the pandemic begin to diminish and vaccination numbers continue creeping upwards, overall sentiment on ASX healthcare shares appears to be shifting towards a more bullish tone.
Expert commentary on the sector shows many investors are banking on a year of continued innovation and recovery after a sluggish year on the charts.
Moreover, the S&P/ASX 200 Health Care Index (ASX: XHJ) bounced off its 3-month low in October and has climbed back towards its single-year highs at 45,535 points at last check, indicating strength in the broad sector at the back end of 2021.
With that in mind, let's take a walk through what the experts are saying on the outlook for these ASX healthcare shares in 2022.
Ramsay Healthcare Limited (ASX: RHC)
The Ramsay Healthcare share price closed last week at $69.50 after climbing 5% in the previous 5 trading days.
Shares in the global healthcare company have been on a wavy run these past 3 months, closing as high as $73.42 and trading as low as $65.94 in that time.
JP Morgan notes that Ramsay's operating results "remain at the mercy of COVID-19," especially due to its United Kingdom and European divisions taking an unexpected hit as new cases are again on the rise there.
Yet, despite these headwinds, JP Morgan has not lost any confidence in Ramsay's expected recovery, "given the success of vaccine roll-outs and reports of growing waiting lists."
It values Ramsay a buy at $74 a share and reckons the market will recognise these tailwinds and bid up the share price to that level.
JP Morgan says that Ramsay's ability to "continue to generate solid earnings growth is augmented by the group's ongoing brownfield development program, potential for acquisitions and cost savings. We believe the company has a good track record of delivering growth through the aforementioned measures."
Jarden also has Ramsay at a buy alongside Macquarie, with price targets of $84.30 and $75.50, respectively, whereas Morgans and Credit Suisse each have it as a hold.
Consensus has it valued at $71.36 a share, implying an upside potential of around 3% at the time of writing, and 8 analysts have it as a buy from a list provided by Bloomberg Intelligence.
Sonic Healthcare Limited (ASX: SHL)
Shares in Sonic Healthcare have outperformed the broad healthcare indices and bounced off a 3-month low of $38.58 in late November. Sonic shares are trading at $44.07 in early morning trade today.
As such, the diagnostics and imaging giant was a serious performer out of the healthcare majors over the last month and is now up 37% since 1 January.
Given its performance, backed by fundamental tailwinds in COVID-19 testing, Morgans is constructive on the shares into 2022, viewing a "growth potential in COVID serology testing".
Morgans also likes Sonic's balance sheet at "gearing of 21.6x" giving a spacious $1.3 billion of headroom, that effectively "opens the door to acquisitions, contracts and JVs".
JP Morgan is equally as constructive on the shares but is yet to bump its rating from neutral at this stage. It recently raised its estimates on Sonic to "allow for the sharp lift in COVID PCR testing in Australia" but notes recent weakness in the Aussie dollar as a potential headwind for the company moving into 2022.
"The [AUD] has risen sharply against most major currencies, suggesting there may be downside risk to our forecasts if current rates prevail for the remainder of FY22" it says.
Morgans rates Sonic as an add with a $47.05 price target whereas JP Morgan remains neutral and values the company at $45 per share.
In the list of analysts provided by Bloomberg Intelligence, the sentiment ratio is evenly split among buy to sell at approximately 50% each, with an average price target of $43.93.
Sigma Healthcare Ltd (ASX: SIG)
Shares in health and pharmaceutical distributor Sigma Healthcare have been walking on a downward slope over the past 3 months.
In that time its share price has plunged from a high of 64.5 cents to its current level of 43 cents per share.
Adding more fuel to Sigma's recent demise is the company's recent guidance downgrade, coming just 2 months after it had reaffirmed its FY22 outlook. Sigma warned investors it is now experiencing issues with the introduction of its enterprise planning resource system due to COVID-19 restrictions.
Sigma expects one-off costs of $25 million to $30 million from the setbacks, and now forecasts earnings before interest, tax, depreciation and amortisation (EBITDA) to come in 10% lower than previous guidance – in stark contrast to its previously forecasted 5% growth in September.
The downward revision in guidance saw Citi slash its earnings per share (EPS) estimates on the company for FY22 by 24%. Furthermore, Citi cut its FY23 and FY24 EPS estimates by 15% and 2% respectively.
As such, Citi subsequently cut its price target on the company by 17% to just 50 cents, in line with Morgan Stanley who has Sigma as equal weight at 48 cents per share.
Cochlear Limited (ASX: COH)
Shares in Aussie healthcare success story Cochlear have been sliding these past few months. Cochlear shares are falling hard from previous highs of $256 back in August. In morning trade they are continuing their decline, down to $213.67.
Given that Cochlear's hearing implant surgeries are considered elective, they have been put on the backburner as a non-priority as the Australian hospital system comes to grips with COVID-19.
Goldman Sachs recognises these challenges and reckons Cochlear is a sell in a recent note to clients. The firm says that Cochlear's surgery volumes remain at risk due to their elective nature. It notes that Australian surgery numbers are yet to recover to pre-pandemic volumes.
It also reckons Cochlear's share price is trading at lofty valuations that make it unattractive right now. Subsequently, it values the company at $197 a share.
Citi is also neutral on the shares but holds a slightly more positive tone in a recent analysis of Cochlear. Analysts at the firm note a recent implant recall of Cochlear's rival, Demant. They say this highlights the high barriers to entry and competitive moat Cochlear has formed on its operations from years of research and development.
Not only that, Cochlear maintained an approximate 65% market share of the implant sector throughout the pandemic, even with the threat of several "well-funded" competitors, Citi says.
It rates the shares neutral with a $220 price target. Whereas Jarden and Macquarie have Cochlear as a buy with valuations of $258 and $256 respectively.
Cochlear shares have gained 7% in the past 12 months and are up 13% this year to date.
