Broker tips Ramsay Health Care (ASX:RHC) share price to shoot higher

increase in asx medical software share price represented by doctor making excited hands up gesture

The Ramsay Health Care Limited (ASX: RHC) share price was a relatively poor performer on Tuesday.

The private hospital operator’s shares edged 0.25% lower to $66.93 following the release of a presentation.

This compares to a 0.55% gain by the S&P/ASX 200 Index (ASX: XJO).

Is the Ramsay share price in the buy zone?

According to a note out of Goldman Sachs, it believes the Ramsay share price is in the buy zone.

This morning the broker retained its conviction buy rating and $75.00 price target on the company’s shares.

This price target implies potential upside of 12% over the next 12 months.

What did Goldman say?

Goldman notes that Ramsay has provided an update which revealed that Australian organic revenue grew 8.2% during the third quarter. This compares to historic levels of 3% to 5%.

However, one slight negative was that volumes are still being skewed towards surgical and day-patient caseloads, putting near-term pressure on its sales mix.

Positively, though, Goldman believes there are positive signs around the recovery in non-surgical volumes. Furthermore, COVID costs are now tracking -50% below the first half average, which it estimates releases upwards of 7% to 8% of APAC EBIT on an annualised run-rate.

Overall, Goldman Sachs is positive on its outlook and continues to expect Ramsay to outperform the market’s current expectations in FY 2021 and FY 2022.

It commented: “Following an encouraging start to CY21, we expect to see positive trends continuing into FY22: 1) elevated utilisation profile: 2) improving cost absorption; 3) tapering of cash ‘covid costs’; 4) improving sales mix (non-surgical); and 5) improving surgical mix (higher-acuity).”

“Overall, we make no changes to our sales/EBITDA/EPS forecasts and remain +2% and +9% above Bloomberg consensus in FY21 and FY22 respectively, as we factor in the recovery of margin-accretive caseload, delivery of a backlog, and a tapering of PPE/Covid costs. Our 12-month target price remains A$75, based on our target NTM EV/EBITDA multiple of 10.2x, methodology unchanged, and reiterate Buy (on CL),” it concluded.

The Ramsay share price is up approximately 7% since the start of the year.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Ramsay Health Care Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

The post Broker tips Ramsay Health Care (ASX:RHC) share price to shoot higher appeared first on The Motley Fool Australia.

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