These 2 S&P/ASX 200 Index (ASX:XJO) blue chip shares are excellent and could be worth buying, such as Xero Limited (ASX:XRO).
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There are a handful of excellent S&P/ASX 200 Index (ASX: XJO) blue chip shares that might be worth owning for the long-term.
The below two businesses continue to generate growth and are among the global leaders in their respective industries:
Xero Limited (ASX: XRO)
Xero is one of the global leaders in the cloud accounting software space. It offers its software in dozens of countries, but there are a few regions that generate most of the revenue for the ASX 200 blue chip share.
For example, Australia has over 1 million subscribers. At the end of the FY21 half-year result, the UK had 638,000 subscribers, New Zealand had 414,000 subscribers and North America had 251,000 subscribers. The rest of the world had 136,000 subscribers – but this division saw 37% growth of subscribers, so it’s rapidly rising.
The Xero strategy is to offer clients – business owners, accountants and financial advisers – the best accounting software possible with lots of time-saving and useful strategic tools. As it’s on the cloud, it can be accessed anywhere in the world. The business owners then pay an affordable monthly subscription. The customer base is very sticky.
Xero is still in a high-growth phase where it’s investing heavily to grow its market share and improve its offering. It has also been acquiring bolt-on businesses to improve its services.
One of the most attractive thing about Xero is its very high gross profit margin of 85.7%. That means that most of the new revenue can fall onto the next line of profit.
Sonic Healthcare Limited (ASX: SHL)
Sonic Healthcare is one of the world’s leading pathology businesses. It has operations in many countries including: USA, Germany, Australia, the UK, Ireland, Switzerland, Belgium and New Zealand.
This ASX 200 blue chip share has been listed on the ASX for over two decades and it has increased its dividend in most of those years.
Its profit is currently being pushed a lot higher because of all of the COVID-19 testing. A couple of months ago it had performed 18 million PCR tests to date in around 60 Sonic laboratories.
Sonic has managed to produce significant earnings leverage because all of these tests are utilising existing infrastructure.
Sonic’s pre-COVID business remains resilient despite all of the impacts, with FY21 half-year revenue only down 1%. Total revenue was up 33% in the first six months of FY21, earnings before interest, tax, depreciation and amortisation (EBITDA) grew 89% to $1.3 billion and net profit surged 166% to $678 million.
The ASX 200 blue chip share is expecting more growth as its pre-COVID business recovers and COVID-19 testing continues. There is also the potential for COVID-19 serology testing (immunity testing) to grow.
Sonic is looking at using its strengthened balance sheet to make acquisitions. It’s also looking at contract and joint venture growth opportunities in Australia, the USA and Canada.
It currently has a partially franked dividend yield of 2.4%. According to Commsec, the Sonic Healthcare share price is valued at 14x FY21’s estimated earnings.
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Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of Xero. The Motley Fool Australia has recommended Sonic Healthcare Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.