Treasure Chest: Fisher & Paykel Healthcare

This story features FISHER & PAYKEL HEALTHCARE CORPORATION LIMITED. For more info SHARE ANALYSIS: FPH

FNArena's Treasure Chest reports on money making ideas from stockbrokers and other experts.

By Greg Peel

Whose Idea Is It?

Morgan Stanley

The subject:

Fisher & Paykel Healthcare ((FPH))

More info:

Morgan Stanley has initiated coverage of Fisher & Paykel Healthcare with an Overweight rating and a $21.00 target. The shares are currently trading a smidgen above $18 on the ASX.

Fisher & Paykel Healthcare ((FPH)) is a New Zealand-based, dual-listed medical device company specialising in respiratory care in the hospital or home. The company is distinguished by its Nasal High Flow therapy, leading to sales across the globe.

Fisher & Paykel Healthcare was a clear covid winner in the healthcare space as a manufacturer of respirators. The share price hit a peak of $34.27 in August 2020.

As has been the case with healthcare companies providing covid testing, the covid impact has since waned and, combined with 2022’s general bear market, the share price closed yesterday at $18.14.

However, as we are being increasingly warned by frustrated healthcare experts, covid has not gone away. It’s just we’re all sick of hearing about it. New omicron strains have appeared and in Australia a supposed “fourth wave” is upon us.

Covid cases are also on the rise in the US, as are, as the northern hemisphere heads into winter, flu cases. What’s more, the US is experiencing a strong resurgence in respiratory syncytial virus (RSV).

As Credit Suisse (Neutral; target A$19.50) noted last week, it’s all good news for Fisher & Paykel Healthcare.

Last month, Macquarie (Neutral; target NZ$20.15) pointed out that in Australia, flu cases and hospitalisations during the 2022 winter were four times above the five-year average. Case numbers were suppressed in the prior two years due to restrictions imposed to ward off covid working just the same on the flu.

As a result, the broker anticipates the widely mooted customer destocking could be delayed from the first half of 2023 to the first half of 2024. While positive for revenues, input cost inflation will likely still weigh on earnings margins.

Despite investor attention turning away from Fisher & Paykel in the “post-covid” world, Morgan Stanley notes the pandemic has accelerated hospital acceptance of Nasal High Flow therapy and expanded the installed base, leading to greater consumable sales. As a result, the broker’s revenue forecasts are 2% above consensus in FY23, rising to 13% above in FY27.

The increased penetration of NHF therapy in hospitals has also provided a tailwind for adoption in the home, Morgan Stanley believes. The broker’s bull case scenario implies a 25-30% increase in current homecare sales forecasts.

Morgan Stanley notes the stock is trading at a similar valuation to that of 2019. In the meantime, the company has increased its installed base, providing better growth in consumables, plus the broker’s analysis suggests further upside in homecare sales.

The company reports interim earnings on November 29.

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