Scott Power: ASX healthcare stocks up as economic headwinds cast spooky shadow

• ASX healthcare sector rises alongside broader market despite prospect of further interest rate rises
• CSL appoints Deborah Waterhouse as CEO and managing director as it reaffirms FY27 guidance 
• Health imaging stock Mach7 Technologies delivers fourth consecutive quarter of positive operating cash flow 

Healthcare and life sciences expert Scott Power, a senior analyst at Morgans Financial for 29 years, and his team share their insights on the ASX healthcare sector for the week.

The ASX healthcare sector finished the final week of October strongly, brushing aside looming economic headwinds as investor rotation into the sector continues.

The S&P/ASX 200 Health Care index (ASX:XHJ) was up 1.66% for the past five days at the time of writing, while the benchmark S&P/ASX 200 (ASX:XJO) rose 1.91%.

Morgans senior healthcare analyst Scott Power said the sector was showing signs of resilience in the face of economic headwinds, with interest rates largely tipped to rise again on Melbourne Cup day following higher-than-expected inflation data released this week.

“We’re still in a global cycle of interest rates going up which is hampering growth stocks so it is really a risk-off market at the moment,” he said.

“Typically, the last couple of months of the year are seasonally stronger but the mood of the market is not giving us a huge amount of encouragement at the moment.”

Change of guard at CSL, FY27 guidance reaffirmed

It has been a big fortnight for the ASX healthcare sector’s biggest stock CSL (ASX:CSL) after announcing a leadership transition and reassuring investors at its annual general meeting (AGM) that its turnaround remains on track.

CSL has appointed Deborah Waterhouse as CEO and managing director, effective February 1, 2027, following a global search. Waterhouse brings three decades of experience at pharmaceutical giant GSK.

The appointment was followed by news that CSL stalwart Brian McNamee will be succeeded as chairman by Gordon Naylor, who has served as interim CEO since February.

McNamee led CSL from 1990 to 2013, steering the company through its privatisation and stock market listing in 1994.

After leaving the executive role, he returned to the board as a director before becoming chairman in 2018.

He will retire on March 31, 2027, with Naylor to remain in charge as interim CEO until Waterhouse takes over.

Current board member Carolyn Hewson will also become senior independent director, effective March 31, 2027.

The leadership changes come as CSL seeks to strengthen operating performance and restore investor confidence following a challenging period.

In a research note Dr Derek Jellinek wrote of this week’s AGM, management provided little new information and did not deliver a quantitative trading update.

However, CSL reaffirmed its FY27 guidance, forecasting revenue in line with the previous year and underlying net profit after tax growth of about 5%, slightly ahead of consensus expectations of ~4.5%.

“We believe the AGM delivered the reassurance investors needed, with FY27 guidance reiterated and management indicating Behring and Seqirus are performing to expectations, suggesting the downgrade cycle is behind us,” Jellinek wrote.

“However, following the substantial share price recovery, we would not chase the shares at current levels, preferring to hold existing positions and consider taking some profits following the recent rally.

“Further upside will increasingly depend on tangible earnings delivery rather than improving sentiment alone.

CSL’s share price has shown strong signs of recovering, rising ~57% in the past six months. Morgans maintains a buy rating on the stock, which is currently around $10 ahead of the brokers’ 12-month target price of $187.71.

Cochlear says strategy “remains sound”

Hearing giant Cochlear (ASX:COH) reaffirmed its FY27 earnings guidance at its AGM, with no trading update provided.

COH is targeting net profit after tax (NPAT) of $330-350 million in FY27, representing growth of 2-9%.

Consensus forecasts sit around the midpoint at $339m with Morgans’ estimate of $336m.

COH reported FY26 sales of $2.3 billion, up 2% in constant currency terms, while NPAT fell 21% to $322m as slower growth across several developed markets weighed on performance.

Management acknowledged that external pressures had been more pronounced and persisted for longer than expected, but said its strategy remained sound.

“We have lowered fixed costs as a share of revenue. We have sharpened investment priorities. And we have strengthened operating discipline,” CEO Dig Howitt told shareholders

A major milestone for FY26 was the launch of the Nucleus Nexa System, which COH described as the world’s first and only smart cochlear implant system.

Nexa features a programmable microprocessor, memory and upgradeable firmware in both the implant and sound processor.

In a research note Morgans analyst Dr Derek Jellinek wrote that COH remained a high-quality business with significant structural growth potential.

However, he wrote the new Nexa platform was not likely to be a step-change growth catalyst with earnings likely to recover progressively rather than sharply.

Morgans has a hold rating on COH and 12-month price target of $138.42.

Echo IQ doubles down on aortic stenosis sales

Echo IQ (ASX:EIQ) released its latest quarterly results, highlighting a shift in focus to commercialising its approved aortic stenosis (AS) detection technology after a setback in its bid to secure US regulatory clearance for a second heart disease tool.

EIQ announced in September that the US Food and Drug Administration (FDA) had declined to clear EchoSolv HF, designed to support heart failure detection, through the 510(k) pathway.

The regulator determined the product was not “substantially equivalent” to its existing technology with EIQ appealing the decision.

In the meantime, the company is concentrating on growing subscriptions for EchoSolv AS, its AI-enabled tool for detecting AS, a narrowing of the heart’s aortic valve.

EIQ reported 9697 full-result EchoSolv AS assessments during the September quarter, up 193% year-on-year.

Year-to-date completed assessments now total 29,117, representing ~406% growth compared with the first nine months of CY25

“Clearly a disappointing quarter with the HF approval missing the mark,” Morgans healthcare analyst Iain Wilkie wrote in a research note.

“Looking forward, we view a supervisory appeal success is low probability.”

He wrote the key watch outside of HF developments was now converting AS pipeline into recurring contracted deployments.

“That’s the pivot that turns this into a proper SaaS-style revenue business,” he wrote.

Morgans has a speculative buy rating on EIQ with a 12-month price target of $1.10.

Mach7 achieves fourth quarter of positive cash flow

Often seen as a ‘mini me’ version of ProMedicus (ASX:PME), with a similar focus on the US medical imaging market, Mach7 Technologies (ASX:M7T) has delivered for consecutive quarters of positive operating cash flow (OCF) for the first time with $300,000 in Q1 FY27.

M7T is stepping up investment in its Flamingo platform, which supports medical imaging management and workflow orchestration.

Its five Flamingo modules – Foundation, Storage, Worklist, Sonar and Flow – can be sold independently.

R&D spending is increasing 150%, compared with revenue growth of 8.5%. M7T is targeting a 4.4-fold productivity gain through AI-enabled development to help offset the additional investment.

M7t has also reported its first customer go-live for an orchestration-only deal, which it described as occurring in “record time”.

In a research note Wilkie wrote recurring revenue was holding up on the core business with annual recurring revenue (ARR) run rate growing 8.5% to $23.5m in Q1 FY27.

Contracted annual recurring revenue (CARR) fell 7.4%, largely reflecting a decision by the US Veterans Health Administration (VHA) to discontinue its NextGen PACS program for the National Teleradiology Program.

The decision announced in January halted the planned second phase of M7T’s contract after initial Phase 1 implementation milestones had been completed.

“The VHA headwind is largely in the rear-view, so FY27/FY28 will be marked on whether the business can re-accelerate ARR on its own merits.

“Key watch on install base growth, new customer pipeline conversion, and whether Flamingo early adopter traction post-RSNA translates to material new contract wins by year-end.”

M7T is set to attend the Radiological Society of North America’s an annual meeting showcasing advances in medical imaging and radiology technology later this year.

The company’s shares have fallen ~60% year-to-date, although they have recovered ~14% in the last week.

Morgans has a buy rating on M7T and a 12-month price target of 48 cents.

Tetratherix off to strong FY26 with first commercial sales

Power said Tetratherix (ASX:TTX) had posted a strong start to FY27 as it transitions from research and development into early commercial operations.

During the quarter TTX made its first commercial shipment of Tetramatrix polymer to the US, marking the company’s first product revenue under its Precision Medicine franchise.

The shipment is being supplied to Superpower Health under an exclusive STEPP intranasal drug delivery partnership, adding to an existing US$3m annual licence fee.

The initial STEPP shipment supports a large-scale US market seeding program ahead of a planned Q3 FY27 launch.

TTX also reported positive preclinical results for TegenEOS, targeting orthopaedic biologics delivery, and Optimatrix, designed for cataract surgery.

Meanwhile, TetraDerm has completed patient treatment across all cohorts in its surgical scar trial with global partnering discussions now underway.

On the regulatory front, TTX received a substantive FDA review update on its Tegenix dental 510(k) submission, providing further validation of its regulatory pathway.

The company also completed its MDSAP audit and remains on track to open its new manufacturing campus in Q2 FY27, which is expected to increase production capacity ~15-fold.

TTX finished the quarter with $26.4m in cash and no debt.

“Tetratherix is catalyst-rich over the next six to 12 months,” Power said.

“Key near-term catalysts include FDA regulatory approval for its dental application, although timing remains difficult to predict, and further commercial sales to Superpower Health.”

Across the broader platform, multiple partnering opportunities offer additional upside to the investment case. “

Morgans retains a Speculative Buy rating on TTX with a price target of $8.59.

The views, information, or opinions expressed in the interview in this article are solely those of the interviewee and do not represent the views of Stockhead.

Stockhead has not provided, endorsed or otherwise assumed responsibility for any financial product advice contained in this article.

Disclosure: Iain Wilkie owns shares in EchoIQ. Scott Power owns shares in Tetratherix. Both own shares in ProMedicus and Mach7 Technologies. 

Nadine McGrath owns shares in CSL.

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