Sonic Healthcare is under Algo Engine sell conditions, however, we take the time to look at the financial outlook of the business, following yesterday’s FY19 result.
FY19 sales revenue was up 11.6% and EBIT growth increased by 10%.
Excluding any FX benefit, we expect Sonic to grow FY20 EBITDA at 6 – 8%, which will support a forward yield of 3.2%.
The stock is trading on FY20 PE of 23x earnings and we will look to buy SHL on the next Algo Engine buy signal.
Sonic Healthcare reported a 1H19 result that was in line with consensus expectations. Moderate single digit earnings continue to flow through from Australia, US and Germany.
FY20 forecasts are for 3 – 4% EPS growth. We consider the stock slightly expensive and look to buy on a the next pullback.
At $22.50 Sonic Healthcare is looking like good value.
Whilst earnings growth is only in the 3 – 4 % range, owning it at the current price and selling out of the money call options makes sense.
SHL goes ex-dividend for 32 cents on the 6th of March.
When combined with the call option income, the strategy is generating 10% p/a cash flow.
Sonic Healthcare is one of our preferred opportunities in the current market.
We suggest accumulating the stock and looking to sell covered call options to enhance the return.
SHL has re-affirmed FY19 earnings and guidance was lifted slightly, the new earnings growth range now sits between 6- 8%.
Based on FY19 earnings, we have SHL now trading on a forward yield of 4%.
Sonic Healthcare is looking oversold and we believe buying support will build within the $21.50 – $22.50 price range.
SHL has a large percentage of their diagnostic equipment revenue based in US Dollars. As such, the company will benefit from the lower Aussie Dollar.
Our ALGO engine triggered a buy signal for SHL last Friday at $23.70.
This “higher low”pattern is referenced to the intraday low of $22.50 posted on April 4th.
We like the diversified structure of SHL in which no single operation accounts for more than 25% of the company’s overall revenue.
In addition, SHL generates a large percentage of their earnings in both the USA and Europe which will increase, on a net basis, as the AUD trades lower.
We consider SHL a good buy/write strategy as the share price approached the $25.00 level.
Our Algo Engine has triggered buy signals in Sonic Healthcare, Resmed and CSL over the past few trading sessions.
RMD has experienced its first sell-off since rallying from $10 last year to $16 only a few weeks ago.
The ALGO engine is now flagging the new “higher low” at $14 and we suggest buying a 1/2 size allocation here and then waiting to see if we get another ALGO signal to add to the position.
CSL provides good long-term fundamentals. The PE is still expensive, however, 10 – 20% EPS growth is attractive! Accumulate at $180
SHL looks to be good value at $23. We see resistance is $25, so look to sell call options to enhance the return.
As price action in Sonic Healthcare retraces back to $25, we recommend investors look to accumulate the stock and sell covered call options to enhance the yield.
Sonic goes ex-div on the 12th September.
Our ALGO engine triggered a sell signal in SHL on February 5th at $24.85
In our blog post from March 3rd, we set an initial downside target of $23.10.
Shares of SHL hit $23.00 yesterday and we closed out of our short CFD positions on the SAXO Go platform.
At 21X estimated 2018 earnings, the stock looks more attractive at $23.00, than at $25.00
However, given the heightened volatility in the ASX market in general, we will remain flat in SHL and advise clients when we look to enter another position.
Our ALGO engine triggered a sell signal in SHL on February 5th at $24.85.
In the company’s recent earnings report, their 2018 guidance expects growth in the 6% to 8% range.
This places SHL at 22.5 times earnings, which is considerably higher than its industry peers.
Technically, the next key support level is found at the February 15th low of $23.10.