Analysts expects ASX 200 healthcare sector to be affected by cost inflation

2 min read | January 15, 2024 05:28 PM AEDT | By Team Kalkine Media

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Analysts expects ASX 200 healthcare sector to be affected by cost inflation — Image source: Guschenkova, Shutterstock

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In the dynamic landscape of the Australian healthcare sector, analysts at Morgan Stanley anticipate ongoing challenges for companies, primarily stemming from cost inflation. As the sub-index for Australian healthcare (INDEXASX: XHJ) experiences a 0.4% decline in early trading on Monday, this article delves into the key insights provided by Morgan Stanley.

Navigating Margins Amidst Cost Inflation

The Australian healthcare sub-index had shown resilience in 2023, gaining 2.3%. However, the current 0.4% decline indicates potential challenges. Morgan Stanley highlights the persistent impact of cost inflation on the margins of healthcare companies operating in the region.

Volume Recovery Struggles and EPS Pressures

One of the significant hurdles faced by healthcare stocks is the slow recovery in volumes to pre-pandemic levels. This sluggishness has resulted in considerable EPS pressures for most healthcare companies, adding a layer of complexity to their financial outlook.

Morgan Stanley's Top Picks: CSL and Sonic Healthcare

Morgan Stanley designates CSL (ASX: CSL) and Sonic Healthcare (ASX: SHL) as key "overweight" rated stocks. These selections underscore the brokerage's confidence in the resilience and growth potential of these specific healthcare entities.

CSL's Path to Outperformance in 2024

For CSL, Morgan Stanley identifies the recovery rate in plasma gross margin as a potential key driver for share price outperformance in 2024. This nuanced perspective provides investors with valuable insights into the factors influencing CSL's future trajectory.

Staffing Shortages and Service Providers' Challenges

The article addresses a major detractor affecting volume recovery – staffing shortages. Service providers like Ramsay Health Care (ASX: RHC) have faced inhibitions in their operations due to challenges in recruiting and retaining sufficient staff.

Labour Cost Projections for Integral Diagnostics and Healius

Morgan Stanley projects labour costs to remain elevated across FY24 for Integral Diagnostics (ASX: IDX). Additionally, the brokerage expresses skepticism about Healius (ASX: HLS) achieving its FY24 guidance in the current labor market conditions.

Conclusion

In conclusion, Morgan Stanley's outlook provides a comprehensive view of the challenges and opportunities within the Australian healthcare sector. Navigating the complexities of cost inflation, volume recovery, and staffing shortages requires a nuanced approach from both investors and industry players.

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