Many of the company’s products and services are highly relevant for the treatment and care of those with COVID-19. So, could this be an opportunity for Fisher & Paykel to accelerate its earnings?
The Fisher & Paykel share price has been on a relentless trend for almost a decade but has often been regarded as ‘too expensive’ given its high price-to-earnings ratio.
For the first half of FY20, Fisher & Paykel reported a strong result with net profit after tax (NPAT) increasing 24% and operating revenue increasing 12%. The company’s strong growth has been largely attributed to its hospital product group which includes humidification products used in respiratory, acute and surgical care. Products in the hospital group made up 62% of Fisher & Paykel’s operating revenue in 1H20. Meanwhile, the company’s homecare product group includes products used in the treatment of obstructive sleep apnea and respiratory support in the home.
Lewis Gradon, the company’s Managing Director and CEO, spoke to the impact of COVID-19 in a trading update, saying: “We’ve seen better-than-expected sales in our Homecare product group combined with continued strong growth in our Hospital group. This includes an increase in demand from China related to the COVID-19 coronavirus outbreak.”
The company also does not have a manufacturing facility in China, but some of its suppliers of raw materials are based in China which may result in supply chain impacts.
This update was provided on 21 February 2020 when China had the largest figure of confirmed cases. As the United States and many European countries have since overtaken China, I believe there is a bigger opportunity at hand for Fisher & Paykel to assist these countries in key product and support shortages.
Additionally, the havoc that the coronavirus has had on the financial markets has resulted in a surge in the US dollar. The NZD/USD exchange rate has continued to weaken, with the exchange rate currently sitting at just 59 cents. This should further strengthen Fisher & Paykel’s NPAT and operating revenue since the company reports in NZD and generates a significant amount of revenue in USD.
Fisher & Paykel’s reliable and consistent earnings have earned it a CSL Limited (ASX: CSL) like status of being a high quality, but at times ‘too expensive’, company.
I believe that while Fisher & Paykel shares are near all-time highs, there are many tailwinds that will continue to support an accelerated expansion in earnings.
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Motley Fool contributor Lina Lim has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.