Why the Sonic Healthcare Share Price Has Jumped Since April

What happened to the Sonic Healthcare share price?

After bouncing along through most of this year, shares in diagnostic market leader Sonic Healthcare [ASX:SHL] have risen 13% in the last month alone. Go back to April, and the share price gain is an impressive 20%.

Why did Sonic Healthcare shares do this?

In 2012, shares in Sonic were trading at just over $10. But a string of international acquisitions, followed by growth and profit upgrades, saw its share price trade as high as $23.73 in July last year.

However, a profit downgrade, followed by a government proposal to cut some of the bulk-billing rebates to diagnostic providers, took the market by surprise. Shares momentarily traded below $17.

With the proposed changes set to commence on 1 July — the day before the election — the government took the decision to backpedal on their decision. Implementation has been deferred, with no firm date set for commencement.

What now for Sonic Healthcare?

The next big question is whether the current government, if re-elected, will push on with the proposed changes. Although more than half of Sonic’s revenue is now generated offshore, the changes would still have a material impact on their domestic earnings.

With 600,000 signatures on the petition by the pathology industry’s lobby group — Pathology Australia — against the proposed changes, it looks like the government has, for the time being, shied away from any changes. We’ll know either way after the election.

Not only that, the government is also looking at capping the rental paid by pathology companies to their landlords — a move that could help offset the impact to pathology companies, if they decide to push on with any changes.

Matt Hibbard,
Money Morning

Money Morning Australia