The Sonic Healthcare Limited (ASX:SHL) share price is pushing higher today after COVID-19 testing underpinned a Q1 profit surge…
The post Sonic Healthcare (ASX:SHL) share price higher after COVID-19 driven Q1 profit surge appeared first on Motley Fool Australia. –
The Sonic Healthcare Limited (ASX: SHL) share price has been a positive performer on Wednesday.
In morning trade the healthcare company’s shares are up 2% to $35.40.
Why is the Sonic share price pushing higher?
Investors have been buying the company’s shares after the release of its first quarter update.
According to the release, Sonic has started the year very strongly and delivered first quarter revenue growth of 29% to $2,144 million.
Things have been even better for its earnings thanks to a material increase in its margins. For the three months ended 30 September, Sonic’s earnings before interest, tax, depreciation and amortisation (EBITDA) was up 71% on the prior corresponding period to $580 million.
What is driving Sonic’s strong growth?
The key driver of Sonic’s strong performance in the first quarter has been COVID-19 testing.
Management notes that the company is continuing to perform a crucial frontline role in combating the COVID-19 pandemic. Its laboratories in Australia, the United States, and Europe are currently testing thousands of people every day for COVID-19. To date, Sonic has conducted more than 9 million COVID-19 tests globally.
Pleasingly, the rest of its business is performing well and supporting its growth.
Management advised that the majority of its divisions grew base business revenues during the quarter. Combined with the cost saving initiatives that were implemented during the early days of the pandemic, their earnings have been growing nicely.
Sonic advised that the Australian Government has recently extended Sonic’s contract to provide the dedicated pathology service for rapid sample collection and testing for COVID-19 in residential aged care facilities to March 2021.
Over 2,700 residential aged care facilities across the country are eligible for this service, which is provided through Sonic’s national network of laboratories and collection teams.
In addition, Sonic has been selected and funded by the US and UK governments to create additional COVID-19 PCR surge testing capacity in preparation for the Northern Hemisphere winter.
Sonic’s CEO, Dr Colin Goldschmidt, commented: “In these unprecedented times, Sonic’s global leadership teams continue to adapt and respond superbly to a fluid COVID-19 environment encompassing increased testing volumes, maintenance of rapid turnaround of results, evaluation of new testing platforms, global supply chain issues, different collection modalities and necessary IT enhancements.”
“Our leaders continue to draw on Sonic’s strong Medical Leadership culture, and to leverage the group’s collective management and medical experience and team spirit at national and international levels. In addition, Sonic’s decades-long investments in cutting edge infrastructure and equipment have created the flexibility required to embrace the rapid growth and new environment presented by the COVID-19 pandemic,” he added.
No guidance was given for the remainder of the year due to the ongoing level of uncertainty resulting from the pandemic.
Management also warned that the growth levels in the first quarter may not continue throughout FY 2021.
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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Sonic Healthcare Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.