Why the Sonic Share Price Jumped this Week

What happened to the Sonic Healthcare share price?

Shares of Sonic Healthcare [ASX:SHL] have jumped close to 10% this week. After being sent to the sin bin in mid-December, its shares found a floor in January, having rallied back since.

Why did Sonic Healthcare do this?

The reason for the fall was clear. Against a backdrop of deficits as far as the eye can see, the Federal Government announced mid-December a range of proposed cuts to repair the budget deficit. Unexpected, and without consultation, $650 million was to be taken out of pathology and imaging services over the next four years. Sonic shares dropped by almost 15% in two days.

Fast forward to this week and Sonic have come out fighting. On Tuesday, Sonic announced an 8% increase in half-year earnings. Importantly, in a wobbly market, Sonic reaffirmed they are on target to hit full-year profit guidance. And they’re not taking the proposed budget cuts lying down. Get ready for some heavy duty lobbying.

What now for Sonic Healthcare?

If anything, the proposed cuts by the government highlight a key advantage Sonic enjoys over its rivals — more than 50% of its earnings now come from offshore. What pleased the market was that these international earnings are ramping up.

Sonic is both a growth and income stock. Along with their solid results, Sonic also announced an increase in their interim dividend to 30 cents per share. Shares go ex-dividend on 3 March, 2016, hitting shareholders bank accounts in the first week of April.

Matt Hibbard,
Money Morning

Money Morning Australia