FPH - Fisher Paykel Healthcare Corp

[Shareguy]

A good result and slight beat on Craig's fc.

Craig's say

FPH – Stephen Ridgewell has retained the Neutral recommendation on Fisher & Paykel Healthcare with a revised Target Price of $28.70 (+10%). The Title "Growing into its valuation" speaks to the challenge of maintaining a Neutral recommendation on a stock priced by global investors with a FY25/26/27 PE of 48x/42x/37x. Clearly, FPH is priced for perfection but what it has in its favour is a return to normalised earnings momentum after a volatile COVID period – the Charts below illustrate this to some extent with Ridgewell's revised FY25F/FY26F NPAT lifting c8-10% and representing YoY growth of +34%/+16%. Ridgewell's revised estimates are at the top of FPH's valuation range (revenue $1.9-2B, CIPe $1.995B, uNPAT $310-360m, CIPe $355m) reflecting his view that Guidance is conservative with margin Guidance better than expected due to 1) lower operating costs 2) lower freight costs and other gross margin improvements and 3) CCY tailwinds. The conviction around FPH's earnings momentum and outlook is underpinned by market share growth in Homecare (OSA) and secular compound growth in the Hospital segment

[Basil]

To be fair, FPH only got to $35 because it was a Covid fad stock.

Which is precisely why I rated it a sell back then and a lot of other stocks got disconnected from their metrics during that period, many fueled by once in the lifetime artificially ultra-low interest rates.

I'm with Craigs, its currently priced for absolute perfection like RYM was a decade ago at $8.50 and people were asking what could possibly go wrong... and look how that's worked out!  That's the thing with market darlings, they have to stay being market darlings and performing to perfection and if they don;t a massive destruction of capital occurs. 

[Breezy]

I don't see much if any upside in the sp over the next year from its current level but its a great long term hold or trading stock as its very volatile even on a daily basis. It ticks a lot of boxes for a blue chip.

[Left Field]

Which is precisely why I rated it a sell back then and a lot of other stocks got disconnected from their metrics during that period, many fueled by once in the lifetime artificially ultra-low interest rates.

Thanks for reminding us yet again of your brilliance and perspicacity Basil......... however, it begs the question, when did you rate FPH as a 'buy'?

[snapiti]

Which is precisely why I rated it a sell back then and a lot of other stocks got disconnected from their metrics during that period, many fueled by once in the lifetime artificially ultra-low interest rates.

I'm with Craigs, its currently priced for absolute perfection like RYM was a decade ago at $8.50 and people were asking what could possibly go wrong... and look how that's worked out!  That's the thing with market darlings, they have to stay being market darlings and performing to perfection and if they don;t a massive destruction of capital occurs. 

so true, as soon as market darlings show a chink in their armor they get hammered

[Waltzing]

Could it be that stocks like this one are rare on the NZX and it attracts a price premium..

the problem with investing in the last 25 years is the instability of  global markets.

This could be why shares like this demand a higher SP  due to supply... Perhaps its time for a share split. 

 

[Breezy]

Thanks for reminding us yet again of your brilliance and perspicacity Basil......... however, it begs the question, when did you rate FPH as a 'buy'?

I know right, we really need reminding.

[Left Field]

Could it be that stocks like this one are rare on the NZX and it attracts a price premium..

It's a good question Waltzing.

I'm no expert, but it seems that traditionally comparing PE ratio's of other companies in a 'sector' gives us a measure of whether a company is relatively expensive or not. 

However, while it is helpful to compare PE's to determine comparative value of (say) retailers or car sales companies etc.  as most have similar operations and markets....  what happens when there are not many other similar companies to compare with?  Perhaps this is why on the NZX, FPH has long been regarded as "too expensive" and shunned by many because of its perceived high PE.

This is when it may be helpful to think about a company's 'unique moat' .FPH with its many international patents and trademarks, international manufacturing expertise, international market acceptance, vast international market potential etc etc., has few companies to compare with (indeed no other comparisons in the NZX) and FPH can be regarded as having a much wider/deeper 'moat' that sets it apart and protects it from competitors.

Perhaps considering FPH's unique 'moat' is another way to determine if the company is 'over priced" and whether the PE comparison is valid.

Perhaps the 'moat' consideration is a key reason why investors hold 'expensive' stocks such as FPH, GTK and IFT.

Anyway.... excuse my ramblings.....JMHO.

[Waltzing]

"ramblings."

interesting musings... and yes think you have highlighted why these stocks are highly values in NZ by investors...

any drop back has been supported by the markets..

[KW]

Could it be that stocks like this one are rare on the NZX and it attracts a price premium..

the problem with investing in the last 25 years is the instability of  global markets.

This could be why shares like this demand a higher SP  due to supply... Perhaps its time for a share split. 

 

Quality companies are always expensive.  High growth ones even more so.  If using P/E to measure them, its often better to focus on P/E expansion rate rather than absolute value.  ie. if a stock usually trades on a P/E of 40 and then it goes up to 80 without much increase in the E, then its probably over priced.  But merely being on a P/E of 40 is not in and of itself a measure of over valuation.

FPH trades on the ASX as well, and is easily comparable to peers such as RMD and other healthcare companies, so there shouldnt be a NZX premium as such.

The corollary of P/E expansion for popular stocks, is the substantial P/E compression that occurs when such stocks show a deterioration in earnings growth.  Its often brutal (see RYM and A2M).  Mark Minervini says that when a market darling breaks down, there is a 80% chance it will lose 50% of its share price value, and a 50% chance of it losing 80%.  Something people might want to bear in mind when buying the current dogs of the NZX thinking they look "cheap".

[Waltzing]

It when the p/e hits the over 100 ... bit like debt of GDP...

[Basil]

Forward PE of 50 for FY25 according to the average of 14 analysts. 
Average rating just scrapes in as a hold. 4.1 / 10
https://www.marketscreener.com/quote/stock/FISHER-PAYKEL-HEALTHCARE--6492630/finances/

By way of comparison Resmed which is also forecast to grow strongly in the years ahead on a forward FY25 PE of 25, almost exactly half as demanding a multiple.  Average of 15 brokers rate Resmed Outperform, rating 7.7 / 10
https://www.marketscreener.com/quote/stock/RESMED-INC-14259/finances/

Always pays to be very cautious when chasing "darling" stocks on very demanding metrics.    I suspect N.Z. institutions have a mandate to invest a certain percentage of their KiwiSaver funds in N.Z. stocks and there's very few quality stocks to choose from. 

[Left Field]

Crikey, closing over $30 in fine style with 200,000 shares crossing at $30.10 before pivoting back to $30.0005

Big question is where to next??  (and no predictions from me ....although FPH on the ASX closed higher than NZX.)

[Breezy]

Crikey, closing over $30 in fine style with 200,000 shares crossing at $30.10 before pivoting back to $30.0005

Big question is where to next??  (and no predictions from me ....although FPH on the ASX closed higher than NZX.)

Where to next as it nudges $31? certainly running hot, probably pushing the engine to its max ability now.

[Basil]

probably pushing the engine to its max ability now.

Like a BMW M5 Competition V8 engine making 620 horsepower.