Coronavirus Testing Powers Sonic’s First-Half Fiscal 2021; FVE Increased 4% but Shares Expensive

Narrow-moat Sonic Healthcare continues to benefit handsomely from its involvement in coronavirus testing throughout Europe, the U.S., and Australia. The ultimate earnings benefit from COVID-19 testing that will accrue to Sonic is challenging to forecast with the pandemic remaining highly dynamic. Nonetheless, we raise our fiscal 2021 revenue and EBIT forecasts by 7% and 50% to AUD 8.4 billion and AUD 1.8 billion, respectively, with rates of coronavirus testing likely to remain elevated throughout the remainder of fiscal 2021 in Sonic’s key geographies. Reflecting our upgraded fiscal 2021 earnings estimate, we increase our fair value estimate by 4% to AUD 25.70 per share. Sonic continues to screen expensively, trading at a sizable 32% premium to our revised valuation.