S&P/ASX 200 Index (ASX: XJO) healthcare shares saw a very mixed performance during the COVID-19 years of 2021 and 2022. But will 2023 be a stronger year?
For a few names, the pandemic saw elevated earnings. COVID testing produced a lot of extra profit and cash flow for names like Sonic Healthcare Ltd (ASX: SHL), as illustrated below, and Australian Clinical Labs Ltd (ASX: ACL).
But the COVID-testing businesses have seen their share prices plunge over the past year as COVID testing has reduced.
Many other ASX 200 healthcare shares actually suffered because surgeries and other forms of healthcare were delayed. Two examples of such delays impacting earnings during COVID include Ramsay Health Care Limited (ASX: RHC) and Cochlear Limited (ASX: COH).
CSL Limited (ASX: CSL) also suffered because the pandemic increased the cost of blood plasma and also reduced collections.
What's the outlook for ASX 200 healthcare shares?
The companies that saw surgery delays now have waiting lists, so they can benefit from that strong demand in FY23.
While COVID testing is dropping, it's still happening. For the month of October 2022, Sonic Healthcare reported that it generated $57.7 million of COVID-related revenue, which suggests that testing cash flow can still benefit those companies involved.
The investment giant Blackrock is one of the investors that likes the healthcare sector at the moment.
Blackrock said that healthcare is benefiting from a structural transition amid ageing populations. It said that healthcare has "appealing valuations and likely cash flow resilience during downturns".
The fund manager suggested that it also likes healthcare because it's "developing medicine and equipment to help meet ageing population needs".
Valuations
While some ASX 200 healthcare shares have fallen, they still don't have incredibly low price-to-earnings (P/E) ratios, reflecting investor confidence in their defensive nature.
Using the Commsec earnings projections for FY23, these are some of the valuations:
The CSL share price is valued at 35 times the estimated earnings.
The Ramsay Health Care share price is valued at 39 times the estimated earnings.
The Sonic Healthcare share price is valued at 19 times the estimated earnings.
The Cochlear share price is valued at 45 times the estimated earnings.
The ResMed CDI (ASX: RMD) share price is valued at 31 times the estimated earnings.