Many individuals would have gotten a blood test at least once in their life. Those in Sydney may have been tested at a Douglass Hanly Moir, those in Melbourne might have been to Melbourne Pathology and for the residents of Adelaide, Clinpath may have been their choice. Sonic Healthcare Limited (ASX: SHL) is the parent organisation and provider for these crucial services. Alongside the pathology services which are the third largest in the world, Sonic Healthcare also provides laboratory, radiology and primary healthcare services globally.
Sonic Healthcare's share price is currently $24.64, not far from its previous $26.78 all-time high reached in August 2018.
Where does Sonic Healthcare's share price go from here?
Recent half-year reports by Sonic Healthcare showed a moderate increase in revenue of 9% with underlying EBITDA growth of 7%. In addition, earnings per share were up 5% totalling 51.9c alongside dividends increasing by 3.1%. Sonic Healthcare reported exceptional performance in its US, Australian and Swiss laboratory operations and appears to be on track to meet its earnings guidance for the year of 3% – 5% underlying EBITDA growth. With a trailing 12-month PE of 21.8, the value of Sonic Healthcare's share price is evident as it trades significantly below the industry average of almost 29 times earnings.
Towards the end of 2018, Sonic Healthcare announced the acquisition of Aurora Diagnostics for $750 million AUD. Aurora is a leading provider of pathology services in the US with over 32 practices, employing a total of 220 pathologists and having over 100 hospital contracts. The acquisition provides great value to Sonic Healthcare as it's expected to generate an accretive 3% in earnings per share which should be evident in its future financial reports. Factoring in this growth into its current valuation and the Sonic Healthcare share price can start to look quite attractive.
Looking at the balance sheet of Sonic Healthcare from the recent half-year announcement shows a large cash reserve which can always act as a margin of safety for the company and its stakeholders. In addition, the organic growth in cash flow will allow Sonic Healthcare to expand its international footprint through acquisitions and continue paying a steady dividend of 3.38% to its shareholders.
Foolish takeaway
Sonic Healthcare has announced a significant acquisition in the US with the potential to rapidly increase its profitability. If the company can meet its yearly earnings guidance and continue its current growth, Sonic's 2018 share price will soon be overshadowed.
For other blue chips companies to buy, be sure to check out these top 3 ASX blue-chips to buy in 2019.
