The investment analysts at Deutsche Bank have according to financial news wires reconsidered the investment case for sleep treatment specialist Fisher & Paykel Healthcare Corp Ltd (ASX: FPH) in the light of recent legal battles it has taken on.
New Zealand-based Fisher & Paykel (FPH) is a manufacturer of continuous positive airway pressure (CPAP) sleep devices and masks for patients with sleep disorders in much the same way as its Australian rival ResMed Inc. (CHESS) (ASX: RMD).
In fact the two companies' technologically advanced machines and devices are so similar that they are currently engaged in simultaneously claiming against each in separate actions for patent infringements in U.S. courts. This law fest may be something of a snooze fest to many, but it's likely to be costing both companies a small fortune, while distracting them from the real operating business of growing sales.
Deutsche Bank reportedly has a hold call on the dual-listed scrip of FPH while valuing its NZ scrip at $NZ$11.15. Whereas the average share price target for ResMed's US-listed scrip is US$65 according to The Financial Times news service.
Outlook
FPH is due to announce its full year results on May 22 and its track record of double-digit growth supported by rising margins in large addressable markets means this is a quality stock highly prized by investors.
It's also in rude financial health with net debt of just NZ$43 million, versus a half-year operating profit after tax of NZ$78.2 million, which climbed 26% on the prior corresponding period.
It also boasts a return on equity of 39% with annualised earnings of 27.6 NZ cents per share. This means the NZ scrip sells for around 36x annualised forward earnings, with the ASX-scrip trading on an equivalent FX-adjusted basis.
Fisher & Paykel looks a quality company, but I would prefer a lower share price as it has the kind of earnings multiple ususally reserved for unstoppably hot tech stocks, rather than fast-growing medical device businesses. Accordingly, I would wait for a lower share price before moving into the stock.
