Morningstar | Fisher & Paykel Healthcare Increases 1H Profit, But Shares Remain Overvalued
We continue to expect significant growth in Fisher & Paykel's key hospital segment, which enjoys switching costs underpinning the firm's narrow moat rating. However, given softer legacy product sales in first-half fiscal 2019, we have lowered our full-year net profit after tax, or NPAT, forecast to NZD 210 million from NZD 214 million. Last trading at around NZD 13.00, shares in Fisher and Paykel Healthcare trade at a premium to our unchanged NZD 11.00 fair value estimate. Despite increasing first-half fiscal 2019 NPAT 20% versus the previous corresponding period, or pcp, beating guidance of NZD 95 million, Fisher & Paykel Healthcare retained full year profit guidance of NZD 205 to 210 million, tracking our updated projection.The primary driver of our slimmer NPAT forecast is lower fiscal 2019 revenue forecasts for the Hospital division, which represents around 60% of earnings. Hardware sales in legacy products were flat, and we expect a milder Northern hemisphere flu season in the second half of fiscal 2019 compared with the strong flu season in the previous pcp. Nonetheless, the Hospital segment grew revenue 13% to NZD 297 million, tracking our updated fiscal 2019 forecast of NZD 662 million. New applications continue to post impressive growth, with sales increasing 24% on the pcp, in line with our unchanged fiscal 2019 forecast. We expect these higher growth new applications can drive a double-digit revenue CAGR of 18% for the Hospital segment over the next five years.
Homecare started the year stronger than we anticipated, with revenue growing 10% compared with the pcp, and flow generators especially enjoying impressive growth. We have increased our revenue forecast by 1% for fiscal 2019 to NZD 432 million, partially offsetting our lower Hospital forecast.
While we continue to see significant growth prospects in the smaller homecare segment, this market is considerably more competitive than the core hospital segment, and Fisher & Paykel has not managed to dig a moat here. We expect the division to continue to grow at a mid-single digit revenue CAGR of 7% over the five years to fiscal 2023.
Fisher & Paykel Healthcare, together with its subsidiaries, is a designer, manufacturer and marketer of medical device products and systems for use in respiratory care, acute care and the treatment of obstructive sleep apnea (OSA). Co.'s respiratory and acute care products include heated humidifier and respiratory products that are used in the treatment of a variety of medical conditions which interfere with normal respiration. Co.'s OSA products include the continuous positive airway pressure (CPAP) therapy devices, which is used in the treatment of OSA. CPAP is delivered through a mask attached to a flow generator device which generates airflow and enough pressure to keep the airway open.
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