Healthcare

Quite a few of the healthcare names are overearning. And as such, PE’s, can be a little misleading. Normally, you can use a metric like Price-sales to account for what might be unsustainable margins, to get a better handle on valuation.

However in this instance the sales themselves are overearning, and yet you still see, on average, very elevated multiples.

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Paying ~30x EV/EBITDA for these companies is difficult to justify. Any one of them can plausibly fit, but having them all (which does happen, both from stocking picking outcomes and from owning an ETF dedicated to the sector) is a much more difficult proposition.

RHC (Ramsay, the hospital operator) offers good value, in our view, as a comparative “reopening” play, at a less eyewatering multiple, within the sector, and has a more modest earnings hurdle ahead of it.

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ANN, at first blush, appears as good value, but (and see our ANN note for more) is potentially cum downgrade, in our view. We won’t have to wait too long to find out, either way.

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