The Sonic Healthcare Limited (ASX: SHL) share price has fallen significantly since the start of 2022. But the business could be a long-term opportunity.
Sonic Healthcare is a global pathology business. In the first half of FY22, it generated more than $100 million of revenue from each of the following countries: Australia, the United States of America, Germany, the United Kingdom and Switzerland. It also generated $96 million of revenue in Belgium.
It also has two other divisions in Australia: radiology and clinical services.
Here are three reasons why the Sonic Healthcare share price could be an interesting idea.
Ongoing revenue growth
The company’s base business revenue, which excludes COVID-19 revenue, keeps growing. In fact, it’s achieving organic growth.
FY22 half-year base revenue increased 4.3% year on year. The company expects ongoing growth of its base business, with “strong” underlying drivers, including a catch-up of testing postponed through the pandemic.
But it also made $1.3 billion of COVID-19 testing revenue, up 16% year on year.
Future COVID testing levels depend on the evolution of testing regimes and seasonal outbreaks. However, the company is expecting a sustainable level of COVID testing into the future, including routine COVID testing, screening programs, variant testing, whole-genome sequencing, and antibody tests.
It has also made acquisitions to boost its revenue and scale, including ProPath and Canberra Imaging Group.
The ASX healthcare share continues to look for acquisitions. It has a pipeline of opportunities under evaluation. Management said the company’s balance sheet is well-positioned to fund acquisitions and other growth opportunities.
Shareholder returns
Sonic Healthcare wants to make more revenue and profit. But the company also intends to reward shareholders over the long term.
The company’s gearing levels are currently at a “record low level,” so the board wants to move the business towards its long-term debt average through acquisitions and a share buyback.
That on-market buyback is for up to $500 million over the next 12 months. This will help financial statistics like earnings per share (EPS) and return on equity (ROE).
The company also has a progressive dividend strategy that has seen the dividend climb over the last decade.
The board increased sonic Healthcare’s interim dividend by 11% to 40 cents per share. At the current Sonic Healthcare share price, it has a grossed-up dividend yield of 3.8% with a franking rate of 100%.
Technology investment
The ASX healthcare share recently partnered with Harrison.ai after a global search, buying a 20% stake. Sonic described Harrison.ai as a world leader in healthcare artificial intelligence.
Sonic says that artificial intelligence has significant potential to enhance diagnostic accuracy, ‘reproducibility’ and efficiency in pathology and radiology.
According to Sonic, Harrison.ai has partnered with I-MED Radiology Network to form Annalise.ai, which has, in under two years, developed the world’s “most comprehensive AI solution for chest X-ray”. An AI solution for brain CT will soon be launched. Other radiology AI modules will follow.
Sonic is doing a joint venture with Harrison.ai to develop ‘best-in-class’ AI diagnostic tools for anatomical and clinical pathology. Sonic is deploying the Annalise.ai chest X-ray tool in more than 100 Sonic radiology sites throughout Australia.
To conclude its bullishness about the partnership, Sonic said:
Sonic’s deep clinical expertise, combined with Harrison.ai’s proven AI methodologies, [is] set to create [a] powerful force in healthcare AI.
The post 3 reasons why the Sonic Healthcare (ASX:SHL) share price could be an opportunity appeared first on The Motley Fool Australia.
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Motley Fool contributor Tristan Harrison 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 Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.
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