Aging Demographics And Product Upgrades Will Expand Respiratory Care

Key Takeaways

• Product innovation, expansion in hospital and homecare, and operational efficiency are strengthening revenue growth, margin improvement, and pricing power.
  
• Global demographic trends and rising healthcare investment are broadening market opportunities and diversifying recurring revenue streams.
  
• Margins and growth face ongoing threats from healthcare budget constraints, tariffs, currency risks, competitive pressure, and reliance on new product adoption in clinical practice.

Catalysts

Designs, manufactures, markets, and sells medical device products and systems in North America, Europe, the Asia Pacific, and internationally.

• Global demographic shifts-specifically an aging population and increasing incidence of chronic respiratory conditions-are creating sustained demand for respiratory care devices and therapies. This is expected to underpin growth in addressable markets, supporting durable top-line revenue expansion for Fisher & Paykel Healthcare.
  
• The company's ongoing investment in product innovation (e.g., new launches like Nova Nasal OSA mask, Airvo 3, Optiflow Switch, Trace, and 950 system) is driving a steady replacement and expansion cycle within hospitals and homecare. This continuous rollout of advanced, differentiated products is expected to sustain pricing power and contribute to both revenue growth and net margin improvement.
  
• Expanding manufacturing capacity (e.g., completion of the fifth building at East Tamaki and further automation) and operational efficiency initiatives are driving improvements in gross margin. Continuous improvement projects have already delivered a 181bps increase (129bps cc) this year, and leadership expects further gains, which will support better leverage and net margins as revenues rise.
  
• Growing penetration and recurring consumables revenues-particularly from new clinical applications in the hospital and homecare settings-are increasing the installed base, providing more stable and predictable revenue streams, and enhancing earnings visibility.
  
• Rising healthcare investment in both developed and emerging markets is expanding Fisher & Paykel Healthcare's geographic footprint, diversifying revenue streams, and opening new opportunities for sales, particularly as healthcare coverage and government spending increase globally, supporting longer-term revenue growth.

Fisher & Paykel Healthcare Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Fisher & Paykel Healthcare's revenue will grow by 11.3% annually over the next 3 years.
• Analysts assume that profit margins will increase from 18.7% today to 21.3% in 3 years time.
• Analysts expect earnings to reach NZ$593.5 million (and earnings per share of NZ$1.01) by about September 2028, up from NZ$377.2 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 43.8x on those 2028 earnings, down from 57.8x today. This future PE is lower than the current PE for the NZ Medical Equipment industry at 57.4x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.52%, as per the Simply Wall St company report.

Fisher & Paykel Healthcare Future Earnings Per Share Growth

Risks

• Sustained global healthcare budget constraints and cost pressures, frequently cited by management as a "normal" and ongoing challenge, may limit hospitals' willingness or ability to purchase premium devices or new product upgrades-which could place downward pressure on long-term revenue growth, particularly in the hospital segment.
  
• Increased international trade tariffs and persistent geopolitical uncertainty, especially the 10% tariff now applied to hospital products exported from New Zealand and ongoing global tensions, introduce ongoing risk to gross margins; management expects tariffs to delay reaching target margin levels and may face further margin compression if trade barriers worsen.
  
• Intensifying competition in the respiratory care and OSA mask markets-evidenced by management noting the impact of multiple competitor product launches in the second half-threatens market share and pricing power, risks compressing net margins, and potentially slowing recurring revenue growth from consumables.
  
• High currency exposure and the company's reliance on constant currency forecasts hide ongoing FX risk; management noted substantial impacts from currency swings and hedging activities on reported results, so adverse future moves could negatively affect reported earnings or net profit margins.
  
• The company's product revenue growth is heavily linked to continuous clinical practice shifts and new product adoption, yet the typical impact from new launches is only 1–2% per year and rollout cycles can span five years; if innovation slows, if clinical adoption rates decline, or if new products underperform, long-term revenue and earnings growth could be materially impacted.

Valuation

• The analysts have a consensus price target of NZ$35.683 for Fisher & Paykel Healthcare based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of NZ$40.9, and the most bearish reporting a price target of just NZ$27.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be NZ$2.8 billion, earnings will come to NZ$593.5 million, and it would be trading on a PE ratio of 43.8x, assuming you use a discount rate of 7.5%.
• Given the current share price of NZ$37.13, the analyst price target of NZ$35.68 is 4.1% lower. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.