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Can Sonic Healthcare’s AI Strategy Spark a Turnaround After a 40% Share Decline?
Sonic Healthcare’s shares dropped 40% since 2021 due to reduced COVID-19 testing demand. AI initiatives now aim to boost growth and improve profitability.
Sonic Healthcare Shares: Can AI Drive a Turnaround?
Sonic Healthcare's shares have fallen more than 40% since their peak in late 2021. The decline stems largely from the fading impact of COVID-19 testing, which had previously boosted the company's earnings. Now, the focus is shifting to new initiatives, especially artificial intelligence (AI), to support growth and improve performance.
What Led to the Share Price Decline?
During the height of the pandemic, Sonic Healthcare was a major player in COVID-19 testing, conducting millions of tests and generating strong revenue. As the demand for COVID testing has diminished, so have those earnings, which has tempered market enthusiasm.
Despite this, the company is showing organic growth and expanding through acquisitions. In the first half of FY25, Sonic reported an 8% increase in revenue to $4.67 billion and a 12% rise in operating profit (EBITDA) to $827 million. Earnings per share grew by 15% to 49.2 cents, indicating steady underlying improvement.
The Role of AI in Sonic Healthcare’s Future
AI has the potential to improve efficiency, quality, and capacity in pathology and radiology—core areas for Sonic Healthcare. While it’s still early to measure the precise impact on profitability, the company is positioning itself to benefit significantly.
Sonic holds an 18% stake in Harrison.ai and has created a joint venture called Franklin.ai, focused on developing AI diagnostic tools for pathology. Sonic owns 49% of Franklin.ai directly and an additional 9% indirectly through Harrison.ai. Their first AI product, Prostate Digital, began clinical evaluation in a Sydney laboratory in the second quarter of FY25.
Franklin.ai's AI products will be marketed internationally and integrated into Sonic’s laboratory operations. Meanwhile, Harrison.ai’s radiology AI solution, Annalise.ai, offers chest X-ray and CT brain diagnostic support and is already in use across Sonic’s radiology division. The company has also invested in PathologyWatch, a digital pathology platform that includes AI algorithms, aiding Sonic’s digital transformation.
What Could This Mean for Investors?
Analysts at UBS forecast Sonic Healthcare’s net profit after tax (NPAT) to grow from $536 million in FY25 to $885 million by FY29, an increase of 65%. If the AI initiatives accelerate profitability faster than expected, these figures could improve further.
For healthcare professionals considering investment, Sonic’s path shows a mix of challenges and opportunities. The company is moving beyond its COVID-19 legacy and leveraging AI to potentially enhance both financial performance and patient outcomes.