Rudi’s View: CSL, ResMed, And Ramsay Health Care

Always an independent thinker, Rudi has not shied away from making big out-of-consensus predictions that proved accurate later on. When Rio Tinto shares surged above $120 he wrote investors should sell. In mid-2008 he warned investors not to hold on to equities in oil producers. In August 2008 he predicted the largest sell-off in commodities stocks was about to follow. In 2009 he suggested Australian banks were an excellent buy. Between 2011 and 2015 Rudi consistently maintained investors were better off avoiding exposure to commodities and to commodities stocks. Post GFC, he dedicated his research to finding All-Weather Performers. See also "All-Weather Performers" on this website, as well as the Special Reports section.

Rudi's View | Jul 05 2018

In this week's Weekly Insights (this is Part Two):

-Oil Becomes The New Defensive
-Conviction Calls
-Playing The Odds

-Rudi On TV
-Rudi On Tour

Conviction Calls

By Rudi Filapek-Vandyck, Editor FNArena

This will frustrate many a value-seeking investor, but analysts at Goldman Sachs initiated coverage on the Australian healthcare sector, issuing two Buy ratings, two Neutrals, and only one Sell. Price targets for the two Buy-rated stocks -CSL ((CSL)) and ResMed ((RMD))- suggest ongoing upside potential for respective share prices to the tune of 17-18%.

Yes, you read that correctly. Goldman Sachs has initiated with a price target of $231 for CSL and a target of $16.70 for ResMed.

Supporting the buoyant perspectives for both companies is an above-average return from capital invested, with CSL still the best equipped in a sector that remains high on demand and supply-constrained. ResMed, of course, remains a leading player in a market that remains in structural growth.

The price target for Cochlear ((COH)) is $200 with the current management team still largely unproven, points out Goldman Sachs, while Fisher & Paykel Healthcare's ((FPH)) target of $13.40 is actually below the current share price. For Ramsay Health Care, the analysts agree there remain many positives but the negatives from rising costs in private health insurance and related pressure are too much to ignore.


Ramsay Health Care's price target only sits at $49, suggesting the 18-month long de-rating of the private hospital operator still has a wee bit to go.

Within this context it remains equally remarkable that analysts at Morningstar, once upon a time known as Huntley's, stoically hold on to their fair value estimate of no less than $82 for Ramsay Health Care shares, which they declare "substantially undervalued".

Morningstar continues to forecast 8% growth (CAGR) for Ramsay's Australian hospital operations over the coming five years. Increasing utilisation by over-65s supports that forecast, with the analysts highlighting this older segment of the population will grow at around 3% per annum, ahead of the general population.

Rolling out pharmacies, group purchasing cost saving initiatives, plus a healthy balance sheet (allowing for additional acquisitions) are all seen as additional positives.

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