We recently researched Fisher & Paykel Healthcare (ASX:FPH) in The Dynamic Investor. Strong hospital product demand, improving margins & operational efficiencies have been the key factors underpinning the strength in the share price over the last six months. In addition, there has been a generally more favourable shift in market sentiment towards healthcare stocks.

These factors have boosted FPH’s P/E multiple towards the upper end of its historical trading range. Accordingly, we assess whether the market opportunity from new applications, as well as the medium-term earnings growth outlook, justify the lofty multiple.

About Fisher & Paykel Healthcare

Fisher & Paykel Healthcare is a leading designer, manufacturer and marketer of products and systems for use in acute and chronic respiratory care, surgery and the treatment of obstructive sleep apnea (OSA). The Company has two major segments:

i. Hospital Products (65% of group revenue). Includes respiratory and acute-care products, such as humidification systems, Optiflow high-flow nasal therapy and ventilation devices.

ii. Homecare Products (35% of group revenue) – Includes products used in the treatment of OSA and respiratory support in the home. These include CPAP therapy masks as well as flow generators, interfaces and data management technologies.

Comparing Fisher & Paykel Healthcare & ResMed

ASX-listed competitor ResMed (ASX: RMD) has a much higher direct concentration/exposure to sleep apnea hardware/devices (~60%). In contrast, FPH has a more diversified and hospital-centric device exposure (combining hospital respiratory gear and homecare devices).

In masks, both companies compete fiercely in the OSA mask market, with ResMed deriving a larger and steadier 40% portion from recurring mask resupply. FPH’s mask business is a fast-growing subset of its smaller Homecare segment. This segment is heavily by its dominant hospital humidification and high-flow therapy lines).

Key Fundamental Drivers

New Applications a Key Growth Driver for Hospitals Segment

Overall segment revenue growth of +15% in FY26 (FPH has a 31 March balance date) was underpinned by revenue growth in new applications consumables (+16%) and in hardware (i.e. devices) sales (+27%). Looking forward, devices sales look to be supported by the rollout of MR950 and Airvo3 into hospitals. Further adoption outside ICU, higher pricing and mix shift towards duet cannula sees mid-teens revenue growth in nasal high flow therapy (NHF).

New applications account for 75% of segmental revenue. Within new applications, key growth opportunity lies in anaesthesia, which is growing at >40% and now comprises >10% of new apps revenue. The Company has developed Optiflow Switch and Optiflow Trace, which are disposable nasal interfaces developed for Optiflow NHF in anaesthesia. These two products extend FPH’s addressable market into general anaesthesia and procedural sedation, supporting rapid growth from a smaller base (where FPH’s penetration of the Total Addressable Market for anaesthesia is only ~3% and ~13% for NHF).

Upward Margin Trend to Continue

Gross Profit Margin (GPM) in FY26 improved to 63.7%, an increase of 80 basis points (bps), or 122 bps in constant currency terms. This reflects the ongoing progress of the Company’s continuous improvement initiatives and incorporates the approximately 90 bps impact in constant currency of US tariffs on hospital products sourced from NZ.

GPM is expected to increase incrementally in FY27, but not to the same extent as the increase reported in FY26. The key factors underpinning this assumption include:

i. Higher-cost raw materials and finished goods may continue to flow through Cost of Goods Sold (COGS), potentially weighing on GPM in 1H27 despite the recent moderation in spot prices.
ii. Fuel surcharges adding to distribution costs (which account for ~5% of COGS).
iii. The weaker NZ$ against major currencies over the last six months is likely to provide moderate revenue tailwind in FY27. However, the net GPM benefit is less clear given its substantial foreign-currency COGS and hedging arrangements. In context, FPH earns ~99% of operating revenue in currencies other than NZ$.
iv. US tariff risk

The Company has maintained long-term targets of 65% for GPM and 30% for EBIT margin. EBIT margin in FY26 increased by +277 bps in constant currency terms, reflecting the improvement in GPM and revenue growth (+12%) outpacing growth in operating expenses (+8%). Management expect to achieve these targets in 2-3 years, However, if current foreign exchange tailwinds continue, these targets could be met earlier, with potential for GPM to reach 67-68%.

Balance Sheet to Remain in Net Cash Position

At 31 March 2026, FPH held a net cash balance of NZ$401.3m, which is a significant increase on the recent net cash balances. The increase was due to stronger operating cashflow and disciplined working-capital management, which more than offset higher CAPEX and dividend payments.

FPH is facing higher CAPEX requirements in FY27. This reflects investment in infrastructure for future manufacturing and product development. Notwithstanding the balance sheet is expected to remain in a net cash position, given that cash generation remains strong.

Fundamental View

Relative to a strong EPS growth profile of +16.5% over FY26-29 on a CAGR basis, FPH’s currently-elevated trading multiple (48x) renders the risk-reward is unfavourable. In particular, there is a risk that the uptake of new applications is slower than expected. Further, there is potential downside risk to GPM and EBIT margins from several factors. These include tariffs, freight, raw-material costs and manufacturing investment.

Charting View

FPH recent broke above a multi-year resistance line which was near $35. This means that there could be quite a bit more upside over the next several months. However, in the short-term, it has run hard and is now looking overbought. We would expect the stock to head back towards $37 in the short-term and that would provide investors with a better entry point. A weekly close under $35 would be viewed as a negative.

 

Michael Gable is managing director of Fairmont Equities.

 

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