Fisher & Paykel Healthcare Corp Ltd (ASX: FPH) first came to my attention as a potential outperformer early last year, when I felt that rising revenue combined with a modest price was likely to be a winner for shareholders.
Unfortunately, I didn't follow my own advice, and shares have since risen 80% on the back of continued strong performance and successive profit upgrades.
However, investing involves looking to the future and with tomorrow in mind, is there any value to be found in Fisher & Paykel shares today?
The company has a market capitalisation of A$4.2 billion, which looks quite lofty in light of the fact that forecast profit (after a recent upgrade) is expected to be between NZ$135-140 million for financial year 2016.
Fisher & Paykel thus trades on a Price to Earnings (P/E) ratio of around 38, and offers a 2.1%, unfranked dividend.
Investors who look beyond the above metrics may find more to like, however, with the New Zealand-based company continuing to innovate and offering impressive foreign currency exposure (99% of revenues come from outside of New Zealand).
A key benefit to a shareholding in Fisher & Paykel is the company's focus on developing efficient medical devices, i.e., devices that deliver a high level of care with fewer resources than would otherwise be required.
This efficiency comes in many forms (such as products which allow patients to be treated at home, instead of in the hospital) and will prove to be extraordinarily valuable as the burden of healthcare on national budgets increases.
Other ASX-listed companies like Sonic Healthcare Limited (ASX: SHL) and Primary Health Care Limited (ASX: PRY) can expect to come under pressure as governments increasingly seek to stretch their healthcare dollars further. Indeed, some investors in the market are already factoring in an earnings hit for these businesses, thanks to the Medicare Benefits Scheme Review, hence their recent share price weakness.
Fisher & Paykel is not immune to regulatory or structural changes in its industry, but a focus on developing efficient devices lessens the risk. Another crucial benefit is the fact that FPH has already entered the US and European markets, meaning two major hurdles are behind the company. These markets are still large enough to provide plenty of growth opportunities, however.
Another benefit to long-term shareholders is possible increased outsourcing of manufacturing to countries like Mexico (which already produces 30% of FPH's products). The fact that 70% of products are still produced in New Zealand (a nation with relatively high wages like our own) is a testament to their value, but I expect management will seek to reduce costs over time by outsourcing.
Unfortunately, it looks as though much of the big gains in Fisher & Paykel have already been made. Despite a forecast 20% increase in profit for this year, I expect the next few years to deliver growth closer to the 10-15% range on a constant currency basis. As a result, the stock looks too expensive at today's prices, but I expect it will have a bright future and investors should keep it on their watchlist.
