The healthcare sector’s vital signs are improving, but it’s still in intensive care share price wise. Pic: Getty Images.<\/p>\n
Given the sector\u2019s travails, investors should delve into the February earnings disclosures even more diligently than usual
\nDespite their defensive reputation, healthcare stocks have, on the whole, done poorly post pandemic
\nIn most cases, depressed valuations are at odds with the cadence of improved or stabilising earnings<\/p>\n
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The ASX healthcare sector is not exactly basking in love, despite supposedly being one of the most defensive and reliable sectors on the bourse.<\/p>\n
The macro mega theme \u2013 \u201cwe all get sick and we\u2019re all growing older\u201d \u2013 is tiring quicker than a corny Dad joke.<\/p>\n
Or maybe not: when your kid whines \u201cI\u2019m hungry\u201d and you reply \u201cI\u2019m Czechoslovakia\u201d, it\u2019s timeless stuff. Even though the said nation now is known as the Czech Republic.<\/p>\n
But it\u2019s no joke that our healthcare leading lights are doing it tough share price-wise. Paradoxically, in most cases revenue and earnings aren\u2019t exactly going backwards.<\/p>\n
Tolstoy famously said that all families are unhappy, but in different ways. In the case of individual health stocks, one can\u2019t generalise about what troubles them.<\/p>\n
Headwinds include the Trumpian tariff and drug pricing uncertainties that became evident a year ago \u2013 and are far from being resolved.<\/p>\n
Elsewhere, government health and aged care policies have influenced performance. In some cases, stiffer competition has emerged.<\/p>\n
This reporting season, investors should get a feel for whether healthcare\u2019s lagging performance is justified.<\/p>\n
We\u2019re not talking about the drug and device developers, but the \u2018grown up\u2019 exponents of the index that generate revenue and profits.<\/p>\n
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Expect the worst, hope for the best \u2026<\/p>\n
The biggest index inclusion, CSL (ASX:CSL)<\/a> arguably will garner the most attention when it lays bare its interim results on February 11.<\/p>\n CSL\u2019s woes, notably its sensitivity to White House policy \u2013 we use the term \u2018policy\u2019 loosely \u2013 have been well aired.<\/p>\n But there\u2019ll be much more to talk about, including the performance of its Seqirus flu division over the harsh northern winter.<\/p>\n Morgan Stanley sees a \u201cfavourable risk\/reward outlook\u201d for both CSL and ResMed (ASX:RMD),<\/a> with upside for [emerging radiopharmacy play] Telix Pharmaceuticals (ASX:TLX)<\/a> on delivery of \u201ckey pipeline milestones\u201d.<\/p>\n The firm adds: \u201cConversely, we see less appeal for both Cochlear (ASX:COH)<\/a> and Ramsay Health Care (ASX:RHC).<\/a><\/p>\n \u201cWe are equal weight on Sonic Healthcare (ASX:SHL)<\/a> and [protective glove maker] Ansell (ASX:ANN)<\/a>.\u201d<\/p>\n RBC Capital Markets \u00a0expects a \u201csomewhat difficult\u201d reporting season for the sector, \u201cwith most results either coming in line with consensus expectations, or disappointing\u201d.<\/p>\n \u201cWe flag potential result misses from Cochlear [nursing home operator] Regis Healthcare (ASX:REG)<\/a>, [sterilising device play] Nanosonics (ASX:NAN)<\/a>, [pathology giant] Australian Clinical Labs (ASX:ACL)<\/a>, [troubled baby maker] Monash IVF Group (ASX:MVF)<\/a> and a beat from CSL,\u201d the firm says.<\/p>\n \u201cWe have a similarly challenging view for the remainder of 2026.\u201d<\/p>\n RBC cautions about new management teams \u201ckitchen sinking\u201d guidance, cost pressures and \u201ccompetitive threats constraining revenue growth\u201d.<\/p>\n Kitchen sinking refers not to peeling spuds, but to incoming management teams instituting asset write downs and earnings downgrades.<\/p>\n This flatters their subsequent performance, making it look dazzling. The strategy sounds a tad cynical, but the trouble with sceptics is they usually are right.<\/p>\n \u00a0<\/p>\n Recovering from a year of CS-hell<\/p>\n Punters will peruse CSL\u2019s results for evidence of margin improvement, after the company\u2019s cost-cutting purge announced last August.<\/p>\n Also, expect investors to focus on the underlying performance of the Behring plasma arm, in the wake of sharper competition and tender losses.<\/p>\n Morgan Stanley warns of a \u201clikely downside surprise\u201d, on the key metric of revenue growth per litre of immunoglobulin and albumin produced.<\/p>\n At its November AGM, CSL revised its full-year net profit guidance downwards, to 4-7% net profit growth and revenue of 2-3%.<\/p>\n This is not exactly an apocalyptic steer, we gotta say. But expect any further \u201cdownside\u201d tweaking to be poorly received.<\/p>\n RBC expects CSL to deliver \u201ca better-than-expected result with revenue and gross profit exceeding consensus forecasts\u201d.<\/p>\n \u00a0<\/p>\n Resmed: thinner users, fatter margins?<\/p>\n ResMed sets the tone for the reporting season with its December (second) quarter \u2013 a.k.a half-year \u2013 briefing on Friday morning this week.<\/p>\n The sleep apnoea giant has been the most resilient of its ASX peers, with its shares declining a mere 6% or so over the last 12 months.<\/p>\n Brokers expects device growth of 7% for the all-important Americas market, with consumables surging 11%.<\/p>\n Devices are the continuous positive airway pressure (CPAP) machines, while consumables consist of the masks and other bits and bobs.<\/p>\n The anti-fat wonder drug GLP-1 \u2013 made famous by Ozempic and svelte influencers \u2013 is a double-edged sword.<\/p>\n While thinner people are less likely to snore and buy CPAP machines, there\u2019s also evidence that GLP-1 is ncreasing awareness of the benefit of treating sleep apnoea.<\/p>\n \u201cResmed initially was viewed as a GLP-1 loser, but it has conveniently turned into a winner,\u201d Alvia Asset Partners senior investment analyst Daniel Martin says.<\/p>\n (Of course, if you really want a sure-fire GLP-1 winner, buy a US airline for the lower fuel costs.)<\/p>\n In the meantime, Resmed is rolling in cash, so could ramp up its existing share buyback program.<\/p>\n \u00a0<\/p>\n Cochlear: higher profits, lower share price<\/p>\n As with CSL, Cochlear has proffered full year guidance. The storied hearing device maker expects a net profit of $435-460 million, about 14% better at the midpoint.<\/p>\n Look out for any commentary on the company\u2019s rollout of its next-gen sound processor, Nexa, in developed markets.<\/p>\n Morgan Stanley cites \u201cpotential for incremental headwinds associated with reimbursement changes in China\u201d.<\/p>\n RBC believes Cochlear could commit the mortal sin of missing consensus forecasts, \u201cdue to weaker than expected performance in [Cochlear implants] and services\u201d.<\/p>\n Cochlear shares have lost 12% of their value over the last 12 months, albeit with a 6% recovery in the New Year.<\/p>\n Do we hear a momentum shift?<\/p>\n \u00a0<\/p>\n Ramsay in the recovery ward<\/p>\n Investing in the only ASX-listed private hospital chain should be a no-brainer, given the ageing demographics.<\/p>\n But Ramsay has been in the sick bay owing to unfavourable government policies, rampant cost inflation and the perennial tussle between hospitals and private insurers.<\/p>\n Don\u2019t forget Ramsay\u2019s not so ooh-la-la French [and UK] expansions.<\/p>\n Investors should lap up any commentary on the sale process of the Gallic business, ironically named Ramsay Sante (Ramsay Health).<\/p>\n Management has flagged a potential in-specie distribution, if or when the sale happens.<\/p>\n Ramsay\u2019s UK arm looks to have been affected by lower National Health Service outsourcing to the private sector.<\/p>\n Still, Ramsay\u2019s update in November showed the Australian ops are out of intensive care, with September quarter revenue growth of 6.5%.<\/p>\n \u00a0<\/p>\n Sonic to boom?<\/p>\n The leading global pathology chain is entering unchartered waters, following the resignation of CEO Dr Ian Goldschmidt after 32 glorious years.<\/p>\n Sonic shares fell on the news.<\/p>\n His replacement, Dr Jim Newcombe, is an inside appointee who should know what is working and what isn\u2019t.<\/p>\n As with its rivals, Sonic has suffered from frozen Medicare reimbursement and weak post-pandemic demand.<\/p>\n Still, Sonic has guided to full year underlying earnings of $1.87-1.95 billion, around 13% higher.<\/p>\n Germany is emerging as Sonic\u2019s most important market, thanks to recent acquisitions.<\/p>\n But Sonic\u2019s sizeable US business is a management distraction and a drag on margins, says Alvia\u2019s Martin.<\/p>\n He says Newcombe will need to focus on the US, \u201cto identify whether management has spent the money correctly in trying to expand the business\u201d.<\/p>\n Martin opines there is more room for margin expansion than for margin contraction.<\/p>\n He notes Sonic generates a healthy 7% free cash flow yield and returns a significant portion to investors.<\/p>\n \u00a0<\/p>\n The only way is up<\/p>\n Martin notes that the local healthcare sector has perennially underperformed over the past five years.<\/p>\n Despite healthcare\u2019s resilient and defensive chops, it\u2019s lagged the broader ASX by around 50% \u2013 a poor showing for a sector supposedly with resilient and defensive qualities.<\/p>\n Globally, the MSCI World Health Index trades at GFC-era earnings multiples.<\/p>\n As for specific stocks, Macquarie Equities says CSL is trading at almost a 50% discount, adjudged by its average price earnings multiple over the last ten years.<\/p>\n Resmed is 23% under par, followed by Cochlear (-14%), Sonic (-12%) and fellow pathology providers Healius (ASX:HLS)<\/a> (-10%) and Australian Clinical Labs (ASX:ACL)<\/a> (-7%).<\/p>\n Regis bucks the trend, trading at a 23% premium.<\/p>\n While down on the sector, RBC opines the \u201cdownside risks are more than reflected in a number of stocks\u201d.<\/p>\n The firm believes CSL, Cochlear and Telix offer \u201ccompelling risk\/reward trade-offs\u201d.<\/p>\n By the end of February, we should have a clearer idea about how the sector\u2019s vital signs are tracking.<\/p>\n Hold the crash cart for now.<\/p>\n \u00a0<\/p>\n","protected":false},"excerpt":{"rendered":"The healthcare sector’s vital signs are improving, but it’s still in intensive care share price wise. 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