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Why you should bank on Fisher & Paykel Healthcare

Mask and respiratory device manufacturer Fisher & Paykel Healthcare (ASX: FPH) took the market by surprise yesterday, unveiling a record full-year revenue result and smashing the company’s increased profit guidance issued in February.

The company reported total revenues of NZ$556 million, up 11% in constant currency terms (ignoring the impact of currency fluctuations), and net profit after tax (NPAT) of NZ$77.1 million for the year ending 31 March, a 20% increase on the year prior.

Fisher & Paykel Healthcare is a leading company in the respiratory and healthcare industry, competing closely with products produced by Phillips Healthcare (NYSE: AEX) and Australia’s own ResMed (ASX: RMD).

The full-year results were backed up with an optimistic forecast for 2014 profit to growth between 10% and 17% from growth in the company’s higher margin products and new range of masks.

For most healthcare manufacturers, including companies like hearing aid manufacturer Cochlear (ASX: CCH), growth is driven by heavy investment in research and development to stay at the forefront of the market. Fisher & Paykel Healthcare allocated 8.2% of 2013’s operating revenue to R&D, an increase of 9%, but the investment will result in a number of new products being released in the 2014 financial year.

The company will benefit over the long-term as populations age and there is increased spending on both private and public healthcare. Another medical trend is the increasing incidence of obesity prevalent in the west. Obesity is a major cause of obstructive sleep apnea, an ailment for which FPH provide respiratory devices.

Despite it being a competitive market, FPH’s continued investment in R&D, as well as cost reductions by shifting production to lower cost countries closer to the company’s international markets will set FPH in a good position to capitalize in the foreseeable future.

Foolish takeaway

The strong profit announcement pushed FPH’s share price up 7.2% to $2.68. Shares are up 29% in the last 12 months, compared to the S&P/ASX 200 Index’s (Index: ^AXJO) (ASX: XJO) increase of 27%. However the increase is still a long way from RMD’s price appreciation in the last 12 months of 57.8%.

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More reading

The Motley Fool’s purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead.  This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. Motley Fool contributor Regan Pearson owns shares in FPH.

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