Market Underestimates Margin Recovery for Pathology Providers

Top pathology providers are significantly undervalued. Shares in narrow-moat Sonic Healthcare, no-moat Healius, and no-moat Australian Clinical Labs have fallen by roughly 60% on average since the beginning of 2022 and now trade at an average 35% discount to our fair value estimates of AUD 32.00, AUD 3.00, and AUD 3.50, respectively. Within the healthcare sector, pathology stocks screen attractively. The subsector trades at an average price/fair value estimate of 0.65 versus the healthcare sector average of 1.11. Our special report, 'Pathology Providers Are Down but Not Out,' published on May 13, 2024, delves deep into the key drivers supporting our forecast margin recovery for the industry.