Fisher & Paykel Healthcare's shares extended their decline after yesterday's warning of a more muted earnings outlook, which analysts expect will dog the manufacturer for the next couple of years.
The shares fell 5% to $25.70 in afternoon trading on the NZX, adding to yesterday's slump of almost 8%, and slicing a quarter off its market value this year to about $14 billion.
Analysts foresee a rocky two years ahead for F&P Healthcare following the company’s warning that annual revenue will fall by as much as 15%. It notched up record profits through the covid-19 pandemic, when demand for its breathing respirators and related equipment soared.
Jarden equity research director Adrian Allbon “rebased” his near-term estimates for F&P Healthcare, trimming his expectations for the company’s revenue and profit over the next couple of years, and is taking a “more conservative revenue path”.
He expects F&P Healthcare’s net profit to drop to $373 million in the year ending March from $524.2m a year earlier, and fall again the following year to $311m. That’s expected to turn around in the March 2024 year, with Allbon predicting F&P Healthcare’s profit will then be $388m.
Jarden – whose former chief executive Scott St John chairs F&P Healthcare – trimmed its target price to $30, but it raised its recommendation to overweight from neutral as business gets back to normal over the next 18 months.
“Our upgrade to overweight is based on our view that most of this normalisation risk is now in the share price, coupled with our unchanged longer-term confidence in F&P Healthcare's growth prospects with increased certainty given the hospital hardware predominately placed with covid-19 demand,” Allbon said.
Smoothing the bump
Forsyth Barr analysts Matt Montgomerie and Aaron Ibbotson have a similar view on the growing issues F&P Healthcare faces in smoothing out the covid bump of 2021, but kept their neutral rating on the country’s biggest listed company.
Montgomerie and Ibbotson said yesterday’s trading update marked the “first genuine insight” into what the transition to a post-covid world will look like for the company.
“Looking beyond this, we continue to see F&P Healthcare as well-positioned to deliver long-term revenue growth and see a return to its long-term margin targets,” they wrote in a report to clients.
F&P Healthcare’s outlook for sales is the “key unknown”, but the Forsyth Barr analysts anticipate the March 2023 year would be its new base.
They had downgraded their profit estimates for the March 2022 year by 8% to $375.8m due to lower sales in the company’s dominant hospital division.
That’s expected to deteriorate further in 2023, with Montgomerie and Ibbotson cutting their forecast by 21.6% to $322.6m as revenue declines and more expensive freight squeezes the company’s gross margin.
They predict profit will bounce back in the 2024 year as things get back to normal, but have still cut their forecast for that year by 17.4% to $391.8m.
“We decrease our target price to $25.05 from $33.55 given their lower near-term earnings assumptions,” they wrote in their note.
