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Covid Benefits F&P Healthcare, For Now

Australia | Dec 06 2021


Normalisation appears to be on the horizon for Fisher & Paykel Healthcare, after hardware sales have continued to benefit from covid hospitalisations longer than anticipated.

-Fisher & Paykel sales have benefited longer than expected from covid impacts.
-Elevated hardware sales have driven strong performance in the Hospital segment.
-Expect transition to sales normalisation to begin in the near-to-medium term.

By Danielle Austin

Although Fisher & Paykel Healthcare ((FPH)) has sustained elevated revenue in its Hospital segment for longer than expected, the company may be transitioning to normalised trading over the next twelve months.

A rise in cases in Europe and increasing concern around the impact of the omicron variant has increased confidence in another strong half after the company exceeded expectations in the year’s first half. Strength in hospital hardware sales drove revenue of NZ$900m, down just -1% year on year, and profit after tax of NZ$222m, down -2%. Notably, revenue and profit after tax results beat expectations of all seven brokers, beating analysis by as much as 8% and 18% respectively.

Winter peak still ahead, but normalisation on the way

The approaching winter season in Europe and North America already appears to be driving an increase in hospitalisations, with under-vaccinated regions in particularly at risk of higher hospitalisation levels.

While increased hospitalisations would suggest a benefit for Fisher & Paykel in the near-term and offer upside risk to second half forecasts, continued vaccination and booster programs could drag on elevated metrics.

With Fisher & Paykel’s stock trading at a price-to-earnings ratio of 51x FY23 forecasts, limited potential for further covid benefit to hospital sales growth, and an uncertain outlook for the next twelve months, analysts are largely split on how they value the company’s stock despite continued strong metrics.

Jarden downgrades its rating to Neutral from Overweight and increases its target price to NZ$34.00 from NZ$33.00.

Macquarie upgrades its rating to Outperform and increases its target price 16% to NZ$37.57. Earnings per share forecasts are upgraded 9%, 13% and 15% through to FY24 to reflect Hospital segment revenue benefit.

JP Morgan retains its Neutral rating and target price of NZ$32.00. While recent strong results did see the broker increase FY22 earnings forecast 2.5%, JP Morgan expects earning contractions in FY23 and lowers gross margin forecasts in FY22 and FY23 to account for expected freight cost elevation.

Citi maintains its Sell rating, finding the valuation slightly elevated, and increases its target price to NZ$28.75 from NZ$27.00.

UBS retains its Sell rating and increases its target price to NZ$23.50 from NZ$22.65. The broker has increased FY22 after-tax profit expectations by 19% given higher sales in the Hospital segment, but decreases forecasts for FY23 and FY24 by -2% and -5% on a reduced covid impact in the segment.

Wilsons retains its Overweight rating and increases its target price 1.4% to $35.50

Credit Suisse retains its Neutral rating and increases its target price to $34.00 from $33.00. Earnings per share forecasts are increased by 4% in FY22 but decreased by 1-2% in FY23 and FY24.

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