Sonic Healthcare
Recommendation
There’s been little news from pathology, radiology and medical centre company Sonic Healthcare lately. But plenty of large stocks with US exposure have jumped lately—see Aussie unhinged from the US economy—and Sonic has gone along for the ride. Since 21 Feb 12 (Long Term Buy – $11.23), the share price has risen 9%, placing it well above the Hold price in our recommendation guide.
Sonic remains a high quality business suitable to hold for the long-term, but at the current price it’s not sufficiently attractive to buy. It’s also worth reiterating that debt levels have been creeping up, leading to a deterioration in interest cover (see the update from 21 Feb 12).
With that in mind, there’s the possibility of another capital raising. Sonic’s last raising was in November 2008 and, the higher the share price rises, the more likely management is to take advantage. Keep cash aside for this possibility, and take any potential raising into account in your portfolio weighting. Until the stock returns below $11.50, we’re downgrading to HOLD.
The model Growth portfolio owns shares in Sonic Healthcare.