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Winners and losers in healthcare

Lex Hall  |  23 Mar 2020Text size  Decrease  Increase  |  
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Healthcare stocks will prove their defensive worth during the coronavirus spread and Morningstar’s five-year outlook for the sector remains unchanged.

Companies exposed to elective surgery will be among the sufferers whereas providers of life-saving treatments—names such as biotech company CSL (ASX: CSL) and ventilator maker Fisher & Paykel (ASX: FPH)—will be more resilient.

And the direct pressures on the healthcare sector at large will play out in the next nine months.

They’re among the key findings in note by Morningstar healthcare sector analyst Nicolette Quinn, who sees an “opportune time” to buy into CSL.

Australian domestic pharma distributors, EBOS (ASX: EBO), API (ASX: API) and Sigma (ASX: SIG), will also benefit from increased volumes as people self-medicate to boost their immune systems, Quinn says.

She also sees upside for Blackmores (ASX: BKL), which boasts the largest market share in the vitamin and dietary supplement category.

“Beyond short-term covid-19 impacts, the sector is expected to uphold its reputation for defensiveness,” Quinn said on Monday.

Australian healthcare stocks ranked by discount/premium to fair value 

Healthcare stocks

Source: Morningstar; data as of 23 March 2020

Pharma distributors in box seat

Quinn says the nature of the crisis—a pandemic—means healthcare companies will behave differently.

Deferral of elective procedures is hurting certain device companies and hospitals, with Cochlear (ASX: COH) and Ramsay Healthcare (ASX: RHC) expected to be worst hit.

Pharma distributors on the other hand may gain as will CSL.

“Our top picks are the pharma distributors, EBOS, API and Sigma; vitamin company Blackmores; and CSL as we believe it is an opportune time to gain exposure to this high-quality company," Quinn says.

“We expect companies treating life-threatening illnesses, such as CSL and Fisher & Paykel, to be the most defensive, and the latter a clear direct beneficiary given its hospital respiratory devices business.

“In addition, those distributing pharmacy products stand to benefit from increased volumes, this includes the pharmaceutical distributors EBOS, API and Sigma."

The sector as a whole will slow but there will be growth, Quinn says.

“Currently we expect the direct covid-19 pressures on the healthcare system to play out in the next nine months. For the sector as a whole we forecast slowing, but positive, growth into fiscal 2021.

“Our five-year outlook for the sector is largely unchanged and we expect that should the current health crisis translate into a sustained economic downturn, the healthcare stocks should prove defensive.”

Healthcare stocks ranked from most positive to most negative short-term impacts from covid-19

Healthcare Stocks Ranked From Most Positive to Most Negative Short-Term Impacts From COVID-19

Source: Morningstar

The World Health Organisation says at least 20 covid-19 vaccines are in development in the global race for a cure.

 See Nicolette Quinn's full report.

 Coronavirus: A guide for Aussie investors

is content editor for Morningstar Australia

Any Morningstar ratings/recommendations contained in this report are based on the full research report available from Morningstar.

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