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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

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