Sonic Healthcare shares crash 21%: What on earth is going on?

Sonic Healthcare Ltd (ASX: SHL) shares have slipped further into the red in Thursday morning trade.

At the time of writing, the shares are down around another 1%, and they’re trading close to a decade low, at $18.57 each.

Today’s slide means the shares have now crashed 21% over the past two weeks, and they’re now 17% lower for the year to date.

What has happened to Sonic Healthcare shares?

After a strong sell-off earlier this year, ASX healthcare shares came back into favour recently. 

Ahead of the share price crash two weeks ago, Sonic Healthcare shares had rebounded around 28% from a 10-year low in Mid-May. And its shares didn’t move in isolation, either. Australian healthcare stocks have staged a major recovery over the past month, with the healthcare index rising around 18% over the past month.

But amid the sector recovery, Sonic Healthcare reported its results on the 20th of August, and it sent investors into a tailspin.

For FY26, the company reported a 13% increase in revenue and a 11% increase in underlying EBITDA to $1.933 billion. It also reported a 17% increase in underlying NPAT and strong organic revenue growth of 5%.

The result looks good on face value and was broadly in line with expectations, but there were concerns about the strength of Sonic Healthcare’s outlook and about margin pressure overseas.

At the time of its results announcement, the company said it expects continued organic growth across its major markets. This is expected to be underpinned by demand for personalised and preventative healthcare. 

The company also provided EBITDA guidance in the range of $1.95 billion to $2.03 billion (in constant currency). This excludes costs from its IT transformation program. 

It also flagged some earnings headwinds from regulatory changes in Switzerland and a slower ramp-up of profit from its large UK NHS contract.

Ahead of the result, analysts had pinpointed margin recovery as the key part of the investment case. So it looks like Sonic Healthcare’s outlook spooked investors, and many quickly sold up their shares and fled the stock.

So, what do the experts think?

Are the ASX healthcare shares a buy, sell, or hold now?

According to TradingView data, the majority of analysts are neutral about the outlook for Sonic Healthcare shares going forward.

Out of 18 analysts, 10 now have a hold rating. The remaining eight ratings are split between buy/strong buy and sell/strong sell.

The average $22.11 target price, however, does imply a potential 19% upside after the latest sell-off. Even the minimum $19.60 target price suggests the shares could climb another 5%, at the time of writing.

Bell Potter confirmed its buy rating on Sonic Healthcare shares shortly following the results announcement, but shaved its target price to $27.50. The broker said the result was in guidance. But added that the rebounding share price is mostly the result of a broad sector rebound.

The post Sonic Healthcare shares crash 21%: What on earth is going on? appeared first on The Motley Fool Australia.

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Motley Fool contributor Samantha Menzies has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Sonic Healthcare. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.