Morgan Stanley’s top healthcare picks for ASX reporting season

About this update from Ebos Group Limited

Morgan Stanley says the recovery of healthcare earnings to pre-pandemic levels is more challenging than expected. Analysts favour companies that have recently provided guidance on upcoming earnings. “For most stocks, volume recovery to pre-pandemic levels has been sluggish accompanied by higher cost inflation, yet P/E multiples across the sector are generally inflated,” Morgan Stanley analysts said in a note on Tuesday.“Staffing shortages have been a major detractor from volume recovery which could be more structural than transient (eg. nurses).”Heading into August reporting season, the investment bank favours CSL ASX:CSL – which recently reset its FY24 expectations – as well as Sonic Healthcare ASX:SHL – where volume growth is robust and cost inflation has been contained.Ratings and price targets at a glanceTickerCompanyRatingPrevious PTCurrent PT% ChgANNAnnsellEQUAL-WEIGHT$24.01$28.0716.9%COHCochlearEQUAL-WEIGHT$214.00$222.003.7%CSLCSLOVERWEIGHT$325.00$325.00UnchEBOEbos GroupOVERWEIGHT$40.00$40.00UnchFPHFisher & PaykelEQUAL-WEIGHT$22.43$22.43UnchHLSHealiusUNDERWEIGHT$2.75$2.60-5.5%IDXIntegral DiagnosticsUNDERWEIGHT $2.70$2.70UnchMVPMonash IVFOVERWEIGHT$1.30$1.30UnchRHCRamsay HealthcareEQUAL-WEIGHT$57.60$53.60-6.9%RMDResMedEQUAL-WEIGHT$221.00$221.00UnchSHLSonic HealthcareOVERWEIGHT$37.75$37.75UnchMost preferred large caps: CSL, Ebos and Sonic HealthcareCSL provided a market update on 14 June, which triggered a sharp 6.9% selloff. The update reaffirmed an FY23 net profit guidance of US$2.7 billion to US$2.8 billion and a first-time FY24 guidance of US$2.88 billion to US$3.01 billion, which missed analyst expectations. The stock has fallen a further 14% since the update and trading at levels not seen since July 2022. Morgan Stanley’s Overweight thesis is based on key points including:“Industry data suggest that the trajectory of plasma recovery is accelerating.”“CSL's plasma collections are now above pre-pandemic levels with positive momentum.”“We don’t see change to the long-term picture despite the downgrade to our forecasts following the market update, but rather a 6-12 month delay in getting there.”CSL 12-month price chart (Source: Market Index)EBOS Group is a New Zealand-based company that is the largest and most diversified Australasian wholesaler and distributor of healthcare, medical and pharmaceutical products. On 6 June, the company said its cont...

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