Mediclinic International: a top FTSE 100 healthcare stock?

When we talk about FTSE 100 healthcare stocks, names such as GlaxoSmithKline and AstraZeneca generally come to mind. However, there are several other healthcare stocks in the FTSE 100 index that may be worth considering for your portfolio.

One such stock is Mediclinic International(LSE: MDC). The £4.6bn market cap healthcare provider has released a full-year trading update today and its shares have jumped 5%. Let's take a closer look at the company to see if the shares are worth buying.

Business description

Mediclinic is an international private healthcare group with operations in South Africa, Namibia, Switzerland and the United Arab Emirates. It also holds a 30% interest in UK specialist Spire Healthcare Group. The group is focused on providing acute care, specialist-oriented, multidisciplinary healthcare services.

It has experienced a challenging couple of years as lower patient volumes and expansion costs have weighed on profits. Investors have also been concerned with the group's large debt pile. As a result, the shares have declined from over 1,100p back in August 2016 to just 655p today.

Yet today's trading update sounded positive. The company appears to be moving in the right direction. Could a turnaround be on the cards?

Today's update

Mediclinic advised this morning that the group expects to deliver adjusted financial results for the year that are "marginally ahead" of expectations, with a "significant second-half improvement" from the Middle East division. FY2018 revenue is expected to rise 2% in constant currency terms, while adjusted earnings are anticipated to be broadly flat on the prior year.

The group stated that its Middle East division is now entering an "expansionary phase" that is expected to drive a strong increase in revenue and improvements in margins over time. Furthermore, the Southern Africa division delivered second-half revenue growth ahead of expectations while in Switzerland, the Hirslanden division performed in line with expectations. Both of these divisions benefitted from cost-saving programmes and productivity initiatives implemented during the year.

CEO Danie Meintjes was upbeat in his outlook for the company, stating that the demand for healthcare continues to increase and that Mediclinic is well positioned to benefit and create long-term shareholder value.

Worth buying?

The long-term story here does sound appealing. And it appears that the company is now heading in the right direction after a challenging few years.

However, I'm not 100% convinced that the shares offer much value right now. The group expects earnings for the year to be approximately 30p per share. At the current share price, that places the stock on a relatively high trailing P/E of 21.8. For FY2019, analysts expect EPS of 32.4, which results in a forward-looking P/E of 20.2. The trailing dividend yield on the stock is low, at around 1.3%. Comparing these figures to those of other healthcare stocks in the FTSE 100, I think there are better stocks to buy at present. I'd pick up Glaxo or Smith & Nephew before Mediclinic International.

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Edward Sheldon owns shares in GlaxoSmithKline. The Motley Fool UK owns shares of and has recommended GlaxoSmithKline. The Motley Fool UK has recommended AstraZeneca. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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