Australia | May 29 2006
By Robert Rudnicki
Although the analysts at Intersuisse are flagging possible margin contraction at Sonic Healthcare (SHL), they continue to rate the stock a Buy.
Medicare spending is breaching industry limits, the analysts point out, so they see a risk that Medicare spending will be cut.
The likely effects of this, the analysts say, will be that pathology will be worst hit, possibly resulting in lower margins (a similar view has been expressed by Merrill Lynch earlier as well).
However, this is likely to be offset by opportunities to "improve operating efficiencies from domestic assets and potential expansion opportunities overseas," the analysts add.
As a result, they continue to see valuation upside from the current share price.
Of the eight major brokers and equity researchers covering the stock, four rate it positively, four others are neutral.
One of the positive recommendations is Aspect Huntley’s Buy, up from Accumulate this morning.
The independent equity researcher also sees value at current levels and sees the potential for further acquisitions in the company’s pathology operations, which would increase both volumes and operating efficiency.
The stock is currently trading at $14.05, the average target price is $16.79.