As you can see from the graph below, there has been a significant decrease in the number of COVID-19 hospitalisations in most affluent area’s of the world.
This news must surely weigh on the Fisher & Paykel Healthcare results announcement that is due on the 27th (this coming Thursday), as it did at the end of last month for it’s competitor, ResMed (RMD) who’s share price dropped nearly 10 percent over the days following the announcement.
That said, RMD’s share price is nearly back at it’s value prior to the drop, so perhaps there may be a buying opportunity coming up for FPH after this announcement. Of course this all depends on your perspective of value and the position FPH may hold in your portfolio.
I guess FPH are sitting on a Forward PE of about 38 (less cash, assuming EOY results of about $0.5bn NPAT), which should really be no higher than 30 (or 27 to be more conservative), but then FPH have always traded at high PE’s. It would take 4 years of growth at 15% pa for a purchase at this price to mature to favourable rates for my eye.
For me, the case for purchasing more FPH share would be:
- Lack of other options, which there are not (I quite like the retail stocks, HLG and KMD at these prices, especially coupled with the fact that Stats NZ have just released information saying that retail spending is up in the last quarter).
- As a bond proxy, which may look less favourable in light of the altering growth prospects, depending on you requirements. While the dividend is comparable to a bond and the company is a reliable one, the prospect that the share price could fall due to ebbing demand may make this option less attractive to investors looking to invest for a shorter term or long term but with access to their money if required.
That’s not this investors position, though I will review my strategy and also my current portfolio to see if I can fit more FPH into the mix if they drop in value.
If you don’t mind buying on a Greater Fool principle and are happy that sales will return to pre-COVID norms, then you may consider FPH’s historic PE to determine if a buying opportunity is present.
- Finally purchasing FPH at these (or upcoming, potentially discounted) prices may be attractive for an investor who foresees continued hospital spend in Asia where COVID-19 is still rampant, and the few affluent countries who are still experiencing uncomfortable hospitalisation rates, such as France. Those who view the rollout rate of the vaccine as poor (it may be another 6 months before the world is sufficiently vaccinated), may also consider the same position.
In summary, the upcoming result will undoubtedly be a good one, but their could be downside risk to the share price depending on the tone of the commentary from the directorate on the subject of future COVID related demand.
Just for fun, lets see who can guess what NPAT will look like in the results announcement to be published on the 27th. My guess is that it will be no greater than $552m, but will most likely be about
$450m $485m. Considering this, I think the share price will drop back to $31.65 hit $35.20 after the results announcement, based on an assumption that the market has priced in an NPAT of $480m on a PE of 40 (a PE which probably needs more research, but hey, this is just for fun!). Drop your own guesses in the comments section below.
Addendum: I updated my guesses the night before the announcement. Good luck to all holders for tomorrow’s results; it should be a good one.