Sonic Healthcare Limited (ASX:SHL): What Can We Expect From This High Growth Stock?

Sonic Healthcare Limited’s (ASX:SHL) announced its latest earnings update in June 2018, which indicated that the company gained from a robust tailwind, eventuating to a double-digit earnings growth of 11%. Investors may find it useful to understand how market analysts perceive Sonic Healthcare’s earnings growth trajectory over the next couple of years and whether the future looks even brighter than the past. I will be using net income excluding extraordinary items in order to exclude one-off volatility which I am not interested in.

Check out our latest analysis for Sonic Healthcare

Analysts’ outlook for next year seems rather subdued, with earnings growing by a single digit 3.5%. The growth outlook in the following year seems much more positive with rates generating double digit 12% compared to today’s earnings, and finally hitting AU$564m by 2021.

ASX:SHL Future Profit October 11th 18

While it’s helpful to be aware of the growth rate each year relative to today’s level, it may be more beneficial to analyze the rate at which the business is growing every year, on average. The benefit of this approach is that it removes the impact of near term flucuations and accounts for the overarching direction of Sonic Healthcare’s earnings trajectory over time, which may be more relevant for long term investors. To calculate this rate, I put a line of best fit through analyst consensus of forecasted earnings. The slope of this line is the rate of earnings growth, which in this case is 5.7%. This means, we can assume Sonic Healthcare will grow its earnings by 5.7% every year for the next few years.

Next Steps:

For Sonic Healthcare, I’ve compiled three relevant factors you should further research:

1. Financial Health: Does it have a healthy balance sheet? Take a look at our free balance sheet analysis with six simple checks on key factors like leverage and risk.

2. Valuation: What is SHL worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether SHL is currently mispriced by the market.

3. Other High-Growth Alternatives: Are there other high-growth stocks you could be holding instead of SHL? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!

To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.

The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.