I actually used to own shares in FTSE 250 private hospital operator Spire Healthcare (LSE:SPI). However, the stock moved sideways for some time and I eventually lost patience.
However, I revisited the stock recently and noticed… the share price is still going sideways! Nonetheless, it does look like a more interesting prospect to consider today purely because of its incredible earnings forecast.
Big earnings potential
Spire Healthcare is currently trading at 34.3 times earnings for the last reported year, 2023. However, the company’s earnings for 2024 — to be released in March — are set to be around 50% higher than the previous year. This trend continues throughout the forecasting period through to 2026. As such, the company would now be trading at 23.3 times forward earnings, and then 15.6 times earnings for 2025 and 11.3 times projected earnings for 2026.
This will be driven, according to analysts, by surging revenues, which jump from £1.3bn in 2023 to £1.7bn in 2026. In the meantime, the business is expected to maintain control over costs and reduce debt. What’s more, the dividend yield is also expected to expand, reaching 2.25% by 2026, based on the current stock price. All of this is very encouraging.
Why is this happening?
Spire Healthcare is poised for strong performance due to several key factors. The company has seen significant growth in private revenue, driven by a surge in private medical insurance adoption among working-age individuals. This trend is particularly strong in corporate sectors, leading to increased outpatient activity and higher-margin inpatient treatments.
Additionally, Spire’s partnerships with the NHS have expanded, with rising revenue supported by higher commissioning volumes and patients choosing Spire facilities to reduce waiting times. Its NHS revenue increased 5.2% in H1 of 2024.
Operationally, it has implemented a £15m efficiency programme, focusing on digitalisation, automation, and process improvements. This initiative aims to boost hospital EBITDA margins beyond 21% by 2027. The company’s financial performance reflects these efforts, with adjusted EBITDA increasing by 10.8% in the first half of 2024, driven by improved hospital margins and optimised pricing strategies.
An opportunity worth considering
Of course, many UK investors will be put off by the current earnings multiple. After all, if Spire fails to deliver on its promised growth, the stock could fall. In fact, the March results really could be a make or break moment for the business. Expensive stocks that don’t meet earnings targets can slump.
Moreover, investors should weigh whether the business is becoming overly reliant on the NHS and consider whether labour shortages could negatively impact both the top and bottom line. It’s also worth noting that debt is relatively high compared to earnings, although the company is relatively asset rich.
However, the broader trends are very much in the company’s favour. The population is ageing, fewer of us trust the NHS and are taking private healthcare options, and Labour may be more inclined to invest in reducing NHS waiting lists. This is also reflected in the stock’s average price target of £3.07, which is 34% higher than the current price. All eight analysts covering the stock have a positive rating.
