There are two very good reasons why I’ve got my eyes on the Sonic Healthcare Ltd (ASX: SHL) share price.
Sonic Healthcare is one of the largest pathology businesses in Australia. It also has large market positions in both Europe and the US.
These two reasons are why I’ve got my eyes on the Sonic Healthcare share price:
COVID-19 testing continues
Sonic has conducted millions of COVID tests across its different operating countries. Some investors seemed to think that the COVID-19 testing boost to earnings, generating an excellent amount of cashflow for the business.
With the latest variant, Omicron, racing around the world there is yet another wave of testing that Sonic Healthcare seems as though it’s going to be involved in.
I do hope that the world can move on from COVID-19 sooner rather than later, but that doesn’t seem to be the case yet. More cases and more testing should mean more dollars for Sonic Healthcare.
Higher earnings should be supportive for the Sonic Healthcare share price.
Acquisitions
With all of that profit that Sonic is making, it’s not giving shareholders a bonanza of dividends (though the payments are growing). Instead, it’s using that profit to make useful bolt-on acquisitions to improve the business and lock in earnings growth.
Sonic Healthcare has announced the acquisition of ProPath. The ASX share described the business as a high quality, medically led anatomical pathology company based in Dallas, Texas.
ProPath’s annual revenue is around US$110 million. With its 50 pathologists, it serves over 1,000 physicians and more than 20 hospital groups across 45 states.
Sonic said that the acquisition is a very significant step in the ongoing development of Sonic’s anatomical pathology operations in the US and is part of the long-term strategy of integrating different parts of pathology as a seamless service in the US, with revenue and cost synergies, with better service for referrers and patients.
The US anatomical pathology market is estimated to be more than US$10 billion per annum in the country.
Summary thoughts on the Sonic Healthcare share price
Sonic shares have risen 29% over the last year. I think it’s a compelling blue chip business with reliable core earnings, a defensive dividend stream and the potential for more acquisitions.
