Investment group Forsyth Barr says Fisher & Paykel Healthcare shares are overpriced at current levels and could come back by about $10 over the next 12 months as the world moves to more "industry growth rates" in the wake of covid-19.
F&P Healthcare is trading near all-time highs at $29.48, or a market capitalisation of $16.9 billion, making it New Zealand's biggest listed company.
An $18.50 price would effectively lop $6 billion off its capitalisation.
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Equity analyst Chelsea Leadbetter said while F&P Healthcare offered an attractive long-growth story and the covid-19 pandemic would provide near-term earnings tailwinds, it remained "one of the most expensive global medical device companies and its valuation is also elevated versus its history and its Australasian growth peers."
Beneficiaries of covid-19
One of those peers is NYSE and ASX-listed Resmed, a provider of cloud-connectable medical devices for the treatment of sleep apnoea and obstructive pulmonary disease.
Leadbetter said both companies were "direct beneficiaries of the covid-19 pandemic," with Resmed reporting a material spike in ventilator orders, which contributed about 4.5 per cent to its third-quarter revenues.
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Resmed results were also ahead of consensus, up 17 per cent, which was indicative of market share gains across both masks and flow generators, she said.
Longer-term, there was also upside risk from greater adoption for F&P Healthcare's new applications with its hospital segment, "albeit there is risk the competitive landscape is heightened given the current focus of a number of companies in this area."
Leadbetter said homecare dealers had been spoiled for choice, with a suite of new products over the past 12 months in which Resmed had been particularly active and successful. F&P Healthcare was now looking to play catch up "to drive a rebound in growth in its sleep segment."
This could be helped, however, by two recent new mask launches.
Leadbetter is forecasting F&P Healthcare to report a net profit of $278.5 million from revenues of $1.2 billion for the financial year.
At her target price of $18.50, F&P Healthcare's share price return is negative 34.7 per cent, with a net dividend yield of 1.3 per cent.