Morningstar | Transferring Coverage of Fisher & Paykel Healthcare
We maintain our NZD 11.00 and AUD 10.00 fair value estimates for narrow-moat-rated Fisher & Paykel Healthcare following the transfer of coverage to a new analyst. We are now more positive on near-term margins, and have lifted our 2019 net profit after tax forecast by 4% to NZD 214 million, slightly above management's updated guidance of NZD 205-210 million. Offsetting this is our increase 2019 capital expenditure forecast, to NZD 165 million, to more appropriately represent investment in new facilities in New Zealand and Mexico. Last trading at NZD 14.08, shares in Fisher & Paykel appear overvalued.Fisher & Paykel is a high-quality company, with a narrow moat underpinned by switching costs in its hospital segment, formerly respiratory and acute care. The firm already enjoys a dominant position in the segment, notably in its core invasive ventilation product used in ventilating patients who are under intensive care. The hospital division represents around 60% of the firm's sales, and we expect Fisher & Paykel to defend its dominant position in the sector, while continuing to enjoy double-digit revenue growth.
We are less optimistic on the firm's homecare segment, which features products for the treatment of obstructive sleep apnoea. In our opinion, Fisher & Paykel does not enjoy competitive advantages in this division, and remains a distant third in a market dominated by ResMed and Philips, together commanding 80% share. Switching costs in obstructive sleep apnoea are low, and while we expect Fisher & Paykel can continue to grow sales in line with the market through the regular release of new devices, we do not forecast growth in share.
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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