Scott Power: ASX health stocks feel force of market volatility

ASX health stocks fall 3.65% over past week, while the broader market is down 2.04%
Morgans anlayst Scott Power said there’s a risk-off sentiment among investors with concerns about US tariffs
Sigma Healthcare and Pro Medicus elevated to S&P/ASX 50, while Ramsay Healthcare has been booted

Healthcare and life sciences expert Scott Power, who has been a senior analyst with Morgans Financial for 27 years, gives his take on the ASX healthcare sector for the week and his ‘Powerplay’ stock pick.

As South-East Queensland and northern NSW continue the clean-up from ex-Tropical Cyclone Alfred, storm clouds still loom over the ASX healthcare sector.

Sector expert Scott Power said ASX health stocks continue to be feel the brunt of broader market volatility, driven by global geopolitical and macroeconomic concerns, including US president Donald Trump’s tariffs on trading partners, with Australia not exempt.

“There is definitely a risk-off sentiment among investors with concerns around US tariffs and how it’s all going to play out,” Power said.

“People are uncertain, as are companies, and that is where we are sitting at the moment.”

At 1.30pm (AEDT) on Friday, the S&P/ASX 200 Health Care index (ASX:XHJ) was down 3.65% for the past five days, while the benchmark S&P/ASX 200 (ASX:XJO) fell 2.04% for the same period.

“The optimist in me says use this downturn to pick up some good quality names,” Power said.

“However, healthcare as a sector has underperformed the broader market for some time.”

He said at the big end of the sector, blood-products giant CSL (ASX:CSL) had fallen 20% from its 12-month high, while hearing tech company Cochlear (ASX:COH), along with pathology and radiology giant Sonic Healthcare (ASX:SHL), were also down.

Leader in obstructive sleep apnoea and other sleep-related respiratory disorders ResMed (ASX:RMD) has bucked the trend, up ~21% in the past year.

Power’s Powerplay: Sigma enters S&P/ASX 50, set to release results

Sigma Healthcare (ASX:SIG) is Power’s pick of the week after being elevated to the S&P/ASX 50 following its completed merger with discount pharmacy chain Chemist Warehouse in February, which saw its market capitalisation increased from ~$4.5 billion to ~$31.8bn.

The company now owns 100% of the issued shares in CW Group Holdings Limited (Chemist Warehouse). The union combines Sigma’s 400-plus pharmacies, under brands Discount Drug Stores and Amcal, and its wholesale distribution business (servicing more than 4000 chemists) with Chemist Warehouse’s 600 franchised outlets.

“There will presumably be index buying on the back of entering the ASX 50 and over subsequent quarters we would expect Sigma to be admitted to various global indices so again that share price should track higher,” he said.

Sigma will report their full-year results next week as a stand alone company, before the Chemist Warehouse merger.

In a trading update released in February Sigma upgraded its full-year normalised EBIT guidance for the year ending January 31, 2025 to $64 to $70 million, up from the $50 to $60 million range previously guided in September 2024.

The company attributed the upgrade to improved operational performance, including strong execution of the new Chemist
Warehouse supply contract that commenced on July 1, 2024.

Subject to audit completion, Sigma said FY25 Statutory NPAT would be significantly impacted by non-recurring costs relating to the merger, including impacts of changes to existing performance rights as approved at an EGM.

“It’s a quality brand and we are certainly of the view that it should form part of clients’ portfolio,” Power said.

Morgans has an add rating on Sigma and a 12-month target price of $3.

Pro Medicus also into S&P/ASX 50 but Ramsay out

Health-imaging stock Pro Medicus (ASX:PME) has also been elevated to the S&P/ASX 50, while Australia’s largest private hospital operator Ramsay Health Care (ASX:RHC) has been booted after the latest rebalancing of the local bourse.

Power said Pro Medicus continued to be a strong performer and deliver contract wins.

“It has maintained its premier position as one of the best companies in Australia and made its way into the top 50 but at the expense of Ramsay,” he said.

Power said Ramsay had struggled over the last couple of years, particularly with its European operations and a challenging cost inflation environment.

Morgans has a hold on Pro Medicus and 12-month target price of $250. The broker also has a hold on Ramsay with a 12-month target price of $37.10.

The latest rebalance come into effect before the market opens on March 24.

Upcoming catalysts

EBR Systems (ASX:EBR) is expecting its WiSE CRT (cardiac resynchronisation therapy) system to gain US Food and Drug Administration (FDA) approval on or before April 13, 2025, with commercial launch in H2 CY25.

Its WiSE CRT (cardiac resynchronisation therapy) system uses proprietary wireless technology to deliver pacing stimulation directly inside the left ventricle of the heart.

“The near-term catalyst is EBR, so that is around a month away and despite concerns about layoffs with the FDA that seems like the finish line is in sight,” Power said.

Morgans has a speculative buy rating on EBR and 12-month target price of $1.76.

Power said dual-listed (ASX and Nasdaq) regenerative medicine company Avita Medical (ASX:AVH) was moving towards profitability over coming quarters.

“They have been quite clear that their path to profitability over the next three quarters is looking pretty good and they’ve got their product approvals in place and built their sales team,” he said.

In December the FDA granted 510(k) clearance for Cohealyx, a collagen-based dermal matrix, and recell Go Mini.

The Recell system is FDA-approved for burns, skin defects, and vitiligo repigmentation, using spray-on skin cells from the patient’s own skin. Recell Go Mini has been developed to treat smaller wounds.

Avita commercial revenue for the full-year 2025 is expected to be in the range of $100 to $106 million, reflecting
growth of ~55% to 65% over the full-year 2024.

“As each quarter goes by we are going to see those sales numbers increase,” Power said.

Morgans has an add rating on Avita and 12-month price target of $4.36.

Power said infection prevention company Nanosonics (ASX:NAN) had bounced back and was up ~26% in the past month after posting a solid H1 FY25 result.

Nanosonics said its new endoscope cleaning technology Coris continued to proceed through the FDA de novo review process with the target for first commercial launch remaining in Q1 FY26.

Morgans has an add rating on Nanosonics and 12-month target price of $4.50.

Research Corner: Australia’s eating habits on downward spiral

How is your diet going? The eating habits of Australians are on a downward spiral and without significant intervention the nation will fall dramatically short of its ambitious 2030 health targets, according to new CSIRO research.

Using predictive modelling techniques, CSIRO researchers analysed nine years of data from more than 275,000 Australian adults to forecast future dietary trends and compare against the national targets.

“Predictive modelling gives us a powerful early warning system,” senior CSIRO research scientist Dr Gilly Hendrie said.

“Rather than waiting to see the impact of poor dietary habits, we can now identify concerning trends and intervene before they become major public health issues.”

Published in the Australian and New Zealand Journal of Public Health, key findings of the research include:

Discretionary food consumption (ultra processed foods and sugary drinks) will soar by 18% by 2030
Fruit consumption will drop by nearly 10%
Vegetable intake will remain stagnant at well below recommended levels

According to the research young adults (18-30) were the only age group showing some positive trends, yet still consume excessive amounts of discretionary foods, with those over 71 showing the steepest projected decline in fruit consumption of 14.7% by 2030.

The findings come as Australia aims to achieve nutrition targets of two servings of fruit and five servings of vegetables per day and reduced discretionary foods to less than 20% of total energy intake.

The targets are part of Australia’s National Preventive Health Strategy (2021-2030), which identifies poor diet as a key risk factor for chronic diseases, as well as accounting for significant healthcare costs and reduced quality of life.

“We have five years to get back on track with our diets and reverse these concerning trends,” Dr Hendrie said.

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