Wilsons Advisory sees good prospects in healthcare stocks

Healthcare stocks could provide a buying opportunity as the profit season rolls out, with strong fundamentals at the large end providing support for stocks such as CSL.

Wilsons Advisory has flagged the healthcare sector as one to watch. Picture: NCA NewsWire / Christian Gilles

Healthcare stocks could provide a buying opportunity as the profit season rolls out, with strong fundamentals at the large end providing support for stocks such as CSL.

Wilsons Advisory has flagged the sector as one to watch, saying in a note to clients that this reporting season “provides an opportunity for the market to refocus on the strong fundamentals of out-of-favour healthcare companies, particularly the portfolio’s large-cap holdings ResMed and CSL, which both trade on meaningful valuation discounts to history’’.

CSL is favoured by both Wilsons and Macquarie, with the former saying “there is the potential for an upside surprise at CSL’s FY24 result driven by its all-important Behring segment’’.

“Given expectations around the timing of CSL’s gross margin recovery (to pre-Covid levels) have been delayed to FY28 (vs FY25 previously), consensus forecasts are now conservative, providing upside risk for the FY24 result and FY25 guidance,’’ Wilsons says.

“Troughs from (fellow plasma products companies) Grifols and Takeda have provided added confidence in falling plasma collection costs (and) the rollout of the Rika plasma donation system will drive lower collection costs.

“We expect early evidence of Rika’s margin benefits and updates on the timing of its rollout to translate to forward earnings upgrades.’’

The Rika system, which started rolling out in the US in April 2022, can take a plasma donation in under 35 minutes, reducing collection time by about a third.

CSL is Macquarie’s preferred stock in the sector, on the back of the recovery of its base business, operational efficiencies and the potential contribution from new products.

Wilsons says ResMed, which reported on Friday, would be looking to refocus investors on its strong fundamentals in light of the potentially positive impact of GLP-1 drugs such as Ozempic on its future prospects.

ResMed chief executive Mick Farrell told The Australian that the next-generation GLP-1 weight loss drugs encouraged more people to engage with their healthcare provider and subsequently look at treating their sleep issues.

This is in contrast to the initial narrative from some speculators that the drugs would be strongly negative for the stock.

ResMed’s fourth quarter revenues came in at $US1.2bn, up 9 per cent, or 10 per cent on a constant currency basis, while the closely-watched gross margin measure improved 350 basis points to 58.5 per cent.

Wilsons and Macquarie were bullish on the stock, given guidance that gross margin would hit 59-60 per cent in the 2024-25 financial year, which was ahead of consensus.

Originally published as Wilsons Advisory sees good prospects in healthcare stocks