Earnings Volatilty | Fisher and Paykel Healthcare

28 May 2021

Global markets were mixed overnight (S&P 500 index +0.1%) with modest moves following US jobless claims for last week coming in at 406,000, below expectation and reaching a new pandemic low. In other news, President Biden is reportedly considering a US$928m Republican counteroffer to his US$1.7trillion infrastructure spending plan.

Gains were skewed towards stocks that would benefit from a stronger economy and cyclical stocks, while big tech names and pandemic beneficiaries were weaker. Ford Motor has another strong session up +7% after yesterday's EV-focussed investor day, plane engine maker General Electric (+6.0%) and Boeing (+3.7%) mirrored gains in European customer/rival Airbus (+9.2%) after the latter forecasted a strong recovery in aviation.

European markets (Stoxx 600 +0.3%) were up led by the basic resource sector, while healthcare lagged, gains were achieved late in the session following better than expected jobs data.

Closer to home, there were big earnings-related moves in 2 stocks we cover – Fisher & Paykel Healthcare & Costa Group. While both stocks sold off sharply yesterday, we remain positive on both stocks medium term and will release full updates in our weekly report.

Fisher and Paykel Healthcare (FPH:NZX / FPH:ASX)

Fisher and Paykel  (FPH) shares were down -5.3% yesterday following the release of its much anticipated result.
FPH massively benefited from the pandemic with revenues and net profit after tax both up +56% and +82% respectively from last year – but this was slightly below market's high expectations.
We think the sell off was largely due to investors feeling they were left in the dark as FPH weren't able to guidance for the following year and any indication of performance post covid, other than an estimation reiterating total addressable market of ~$20 billion and FPH's intentional to keep advancing manufacturing capacity and hold higher levels of inventory to ensure demand can be met.

FPH is a quality company and we feel comfortable with a BUY recommendation for investors with a medium term investment horizon. Shorter term there is more uncertainty than usual with how things will play out for the company post-covid (on a positive note FPH's products are well known by many more hospitals and doctors now, likely accelerating adoption by about 2-years) and a stubbornly strong kiwi dollar.

We suggest investors wanting to enter a position to "average in" over the near-term as we see FPH's share price is now prone to more near-term volatility from tailing off of covid demand, currency movements, and interest rate hikes.


Australia & New Zealand Market Movers

The Australian market remained virtually flat (ASX 200 index +0.03%) shrugging off the impact of Victoria entering into a snap 7-day lockdown.

Tech and materials were the best performing sectors, which were partially offset with weakness amongst the banks. 

Costa shares slumped -24% after a weak AGM update, where they expect 2021 first half earnings to be only marginally better than the previous year, well off market expectations of ~25% uplift. Offshore operations continue to be strong, but this was offset by weakness in the local market citing labour shortage and pricing pressure across parts of the business. CGC is a good business in our view, with leading market position and a higher level of defensiveness versus peers. However, this is not the first consensus downgrade in recent years, with multiple categories having issues, and a reminder that Costa is an agriculture exposure.

The New Zealand market was  lower yesterday (NZX 50 index -0.8%) dragged down again by market heavyweight Fisher and Paykel Healthcare's result.

Other heavyweight stocks helped to balance out this loss, Mainfreight jumped 4.1% – as its share price had a delayed reaction to yesterday’s strong earnings result  and  a couple of broker upgrades.

Cancer diagnostics business Pacifc Edge slipped -1.7% on their result, despite growing strongly and limiting cash burn, uptake of testing in the US was lower than anticipated due to persistent covid restrictions. 

Restaurant brands fell -4.3% after holding its AGM, despite strong sign of a recovery in sales and profitability the business continues to remain concerned about covid outbreaks restricting operations.

Rakon shares fell -5.4% after initially surging after the company announced its earnings could be as high as $32m in 2022. 

3 Things Markets will be Watching this Week

  1. Central bank rhetoric globally remains in focus for investors. 
  2. The Latest RBNZ OCR meeting on Wednesday and a raft of US data including new home sales, consumer confidence, 1st quarter GDP, durable goods and pending home sales. 
  3. Across Australasia, earnings releases are due from Aristocrat, Kiwi Property, Mainfreight and Fisher & Paykel Healthcare while James Hardie is scheduled to host an Investor Day on Tuesday.
Global markets were mixed overnight (S&P 500 index +0.1%) with modest moves following US jobless claims for last week coming in at 406,000, below expectation and reaching a new pandemic low.

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