Scott Power: ASX healthcare sector soars as big players show strength

ASX healthcare may finally be rebuilding some muscle. Pic: Getty Images

ASX healthcare sector is up 9.98% this week, powering ahead of the broader market which fell 0.22%
Lifted by positive full year results by some of the sector’s biggest names with CSL surging after posting FY26 numbers 
Morgans’ Scott Power said it had been one of the best starts to full year reporting season ‘for a long time’ 

 

Healthcare and life sciences expert Scott Power, who has been a senior analyst with Morgans Financial for 27 years, gives his take on the ASX healthcare sector for the week.

It’s been a big and broadly positive week of FY26 results for the ASX healthcare sector. The XHJ closed up 9.98% for the past five days, outperforming the benchmark S&P/ASX 200 (ASX:XJO) which fell o.22% over the same period.

The sector was lifted by its largest company CSL (ASX:CSL) with the blood and vaccines products giant surging 17.25% on Tuesday after releasing its full year results.

Medical imaging software provider Pro Medicus (ASX:PME) and hearing implants company Cochlear (ASX:COH) also lifted 11.88% and 7.58% respectively on Tuesday after releasing FY26 results.

Morgans senior healthcare analyst Scott Power said it had so far been “one of the best reporting seasons in a long time” for the ASX healthcare sector, which had seen a rotation back into the space in recent months after a long period of underperformance.

“It’s certainly more encouraging, and it’s also worth noting we’re seeing some encouraging gains from overseas stocks as well,” he said.

“The US healthcare market has also been performing strongly and we usually lag the US by about six months so all things being equal we should continue to see money rotate into the sector.”

 

CSL bleeding stops as Morgans lifts target

Tuesday’s results showed signs of redemption for CSL, which before the results was down ~70% from its peak of $342.75 in February 2020. A series of restructures, downgrades and impairments has played on investor confidence.

CSL posted revenue of US$15.8 billion, up 3% on guidance and underlying NPATA of US$3.1bn.

The company expects its core Behring plasma business to return to mid-single-digit revenue growth in FY27.

China-focused albumin sales fell 17% to US$1.1bn, attributed to Beijing’s “cost containment” in that market.

Haemophilia product Hemgenix, was up 25%, while its hereditary angioedema product Andembry had sales of US$250 million in its first full year on market.

CSL’s flu vaccines arm Seqirus posted revenue of US$2bn, down 8%, as the prior year’s total was boosted by one-off avian influenza outbreak sales that didn’t repeat.

However, global seasonal influenza sales were up 4% despite falling US immunisation rates, as changes to federal vaccine guidance and messaging under the Trump administration weigh on uptake.

Revenue rose 3% to US$2.4bn for kidney and iron division, but CSL flagged a materially weaker FY27 forecasting a roughly 25% revenue decline as generic iron competition intensifies, changes in reimbursement take effect and patent protection run out.

“While FY26 was another difficult year, we view the latest result as providing greater confidence that the repeated earnings downgrades are coming to an end,” Morgans healthcare analyst Derek Jellinek wrote in a research note.

Morgans maintains a buy rating on CSL but has lifted its 12-month share price from $147.59 to $187.71.

 

Pro Medicus delivers ‘margin masterclass’

Medical imaging software provider Pro Medicus posted its FY26 results which Morgans healthcare analyst Iain Wilkie described as a “margin masterclass”.

“Margin execution was the standout and the key watch item,” he wrote in a research note.

“EBIT margin of 74.9% and constant currency (cc) EBIT growth of 30.6% beat expectations comfortably, confirming the H2 implementation ramp flagged at the half is now flowing through the P&L.”

Wilkie wrote that foreign exchange “did the damage to reported growth, not the business”.

“Revenue and EBIT would have been $273.5m and $206m, respectively, at flat exchange rates, both growing 28-31% and in line with or ahead of the H1 pace,” Wilkie wrote.

“Momentum remains broad-based, implementations are ahead of schedule, renewals are a clean sweep, and the pipeline is opening in new segments rather than just deepening in existing ones.

“Looking forward, our FY27 revenue expectation of ~$335m feels far less speculative than it looked a few months ago, with the bulk of that step-up already contracted and simply needing existing go-lives to hit full run-rate rather than requiring fresh signings.

“We regard PME as one of the highest-quality businesses listed on the ASX, supported by robust margins and a stable, long-term contracted revenue base that affords significant baseline earnings reliability.”

Addressing concerns of AI to SaaS stocks founder and CEO Dr Sam Hupert said he was more convinced than ever the company would benefit rather than suffer from the technology.

“I have always maintained that AI and healthcare are a strong match, particularly in diagnostic imaging and we are starting to see examples of this emerging,” he said in an ASX announcement.

Morgans retains an accumulate rating on Pro Medicus with a 12-month target price of $230.

 

Hearing good news from Cochlear

Tumbling around 40% in its biggest ever daily fall on April 22 after slashing its forecast for annual earnings, Cochlear delivered a better-than-feared FY26 result.

Underlying NPAT rose to $322m, beating Morgans’ $304m forecast and consensus of $310m, while revenue of $2.34bn was slightly ahead of consensus, despite coming in 1% below Morgans’ forecast.

The result was supported by a stronger H2, with cc sales growth of 6%.

However, in a research note Jellinek noted Cochlear’s underlying operating performance remained constrained by weaker margins.

Gross profit margin fell to 71% from 74%, reflecting sales mix, manufacturing variances and foreign exchange headwinds.

It’s implant business delivered mixed signals. Cochlear implant units rose 5% to 56,692, but revenue was broadly flat in cc terms at around $1.4bn as emerging-market mix continued to weigh.

Adoption of Cochlear’s new implant system Nexa accounted for more than 95% of developed-market implant sales by June with an average 3% price increase achieved.

But developed-market revenue grew only 1%, with US revenue up 4% and Western Europe down 8%, amid insurance approval delays, healthcare funding pressures and inconsistent referral pathways.

“We see the strong Nexa adoption and pricing as positive, but the question remains whether it can translate into incremental market growth, rather than simply supporting share and mix,” Jellinek wrote in a research note.

He noted services provided a bright spot, with revenue up 6% in cc to $635m and developed-market revenue rising 13%, helped by replacement demand for Nucleus 8 processors and the retirement of an older generation processor.

Acoustics revenue also grew 1% to $273m, with growth accelerating to 5% in H2 as its bone conduction hearing implant system Osia expanded into new markets.

“The upcoming Osia 3 launch should provide further support in FY27,” Jellinek wrote.

For FY27, Cochlear expects low-single-digit constant-currency sales growth and underlying NPAT of $330m to $350m.

“We view the result as better than feared, but not yet a material earnings inflection,” Jellinek wrote.

Morgans maintains a hold rating on Cochlear but has lifted its 12-month target price from $107.17 to $138.42

 

EBOS share price lift as guidance hit

Pharmaceutical distributor and healthcare operator EBOS Group (ASX:EBO) rose ~10% on Wednesday after delivering a FY26 result broadly in line with expectations, despite foreign exchange headwinds and higher fuel costs.

Revenue was $13.5bn, up 9% and slightly ahead of Morgans forecast. Underlying EBITDA rose 5% to $614m, while underlying NPAT fell 3.1% to $249.7m due to higher depreciation and financing costs associated with its major infrastructure investment program.

“The company completed its four-year, $360m distribution centre renewal program, positioning the business for stronger cash generation and improved returns,” Power said.

EBOS highlighted the shift to higher-margin business and called out its biologic/allograft business Australian Biotechnologies, where adoption of the Allovance Acellular Dermal Matrix (ADM) portfolio rose more than 15% during the year.

In the healthcare division Terry White Group network reported like-for-like sales up 7.6%.

For FY27, EBOS is targeting underlying EBITDA of around $645m (Morgans forecast) to $655m, implying roughly 5% growth at the midpoint.

“Following a heavy investment phase, EBO is transitioning to a period of growth,” Power said.

“Higher D&A and interest charges will keep EPS growth relatively flat in FY26/27, but we forecast solid growth to resume from FY28.”

 

Morgans downgrades Sonic on FY27 outlook

But it hasn’t been a clean sweep of good results for ASX healthcare’s big names. Morgans downgraded Sonic Healthcare (ASX:SHL) to a hold and reduced its 12-month target price from $28.64 to $22.40 after the medical diagnostics giant released its FY26 results on Thursday, which saw its share price fall 9.25%.

In a research note Jellinek wrote underlying EBITDA of $1.93bn was up 11% to be broadly in line with consensus, while underlying NPAT was ahead and up 17% to $621m, supported by an 11% increase in revenue to $10.867bn.

However, he noted underlying margins fell 32 basis points to 17.8% with pressures in the US, UK and radiology offsetting gains in Germany, Switzeraland and clinical services.

Looking ahead, Morgans said FY27 guidance was less compelling, with EBITDA of $1.95m to $2.03bn, representing growth of just 1% to 5%.

The outlook is being constrained by Australian wage increases, a Swiss fee cut, higher UK labour and HWE integration costs and increased investment in radiology.

Potential changes to US PAMA fees and Germany’s GOÄ private fee schedule also add uncertainty.

“While we view SHL’s core franchise as sound, with 5% organic growth, a diversified geographic footprint, and identifiable operational opportunities, FY27 outlook suggests these positives are unlikely to translate into meaningful earnings acceleration in the near term,”  Jellinek wrote.

 

Avita soars on trial results as Morgans lifts price target

Burns and wound care house Avita Medical (ASX:AVH) was up more than 23% on Wednesday after reporting positive study results for its biosynthetic wound matrix Permeaderm.

The primary endpoint of the 40-patient randomised controlled study across 11 US burn centres was achieved, demonstrating a 70% economic advantage over allograft based on product cost per percent total body surface area treated.

As an off-the-shelf product, PermeaDerm reduced preparation time by 95.7% compared with allograft by eliminating tissue tracking, thawing and meshing, while maintaining comparable application time in the operating room.

PermeaDerm is used for wound preparation, ahead of Cohealyx for rebuilding and Recell for restoration.

In a research note Wilkie noted the result of the study was positive. Following its Q2 CY26 results and on a recent share price rally Morgans has downgraded the stock from hold to sell and upped its 12-month target price from $1.35 to $2.20.

Revenue hit US$21.7m, up 18% YoY, 13% QoQ, prompting the second FY26 guidance upgrade this year to US$86-89m.

Net cash use fell to US$3.2m from US$9.9m QoQ, with the cash balance at US$11.1m. Debt sits at US$46.1m.

“Avita remains a speculative proposition, offering significant long-term upside if execution improves,” Wilkie wrote.

“The company’s RECELL technology is clinically validated and now benefits from restored US reimbursement clarity and expanded NTAP support, which should help drive adoption.

“We are long-term positive, but cash burn means execution and balance sheet risks remain elevated.

“Happy to let the share price settle at current levels where we see it has potentially gotten ahead of itself.”

 

 

The views, information, or opinions expressed in the interview in this article are solely those of the interviewee and do not represent the views of Stockhead.

Stockhead has not provided, endorsed or otherwise assumed responsibility for any financial product advice contained in this article.

Disclosure: Scott Power owns shares in EBOS, Pro Medicus and CSL, while Iain Wilkie owns shares in Pro Medicus.

Nadine McGrath owns shares in CSL and Sonic Healthcare.