- Falling AUD healthy for Aus Healthcare stocks
- Brokers see steady rates as low as 0.96 near-term
- CSL and ResMed to benefit most
- Hedging limits upside for some


By Andrew Nelson

One Australian industry sector that is already enjoying the recent weakness in the AUD, at least in terms of positive forecast revisions, is Healthcare. Over the past week or so, half of the brokers under FNArena coverage have revised their forecasts for the sector, leading to higher earnings and price targets for a number of stocks.

A good number of stocks in the sector generate sales around the world and undertake some significant reporting in US dollar terms. Thus, the downward pressure on the AUD is having some meaningful influence over a number of domestic healthcare stocks.

JP Morgan's FX Strategy team last week lowered its AUD/USD expectations. The broker now expects the AUD/USD will peak at US$1.01 in March 2014 compared to previous expectation for a peak at 1.07 in December this year. This combined with updated valuation assumptions to reflect a lower risk free rate has generated earnings and valuation changes across the sector.

The broker's main focus is on four stocks, CSL ((CSL)), Cochlear ((COH)), ResMed ((RMD)) and Sonic Healthcare ((SHL)).

JP Morgan sees CSL as being one of the major beneficiaries of recent currency movements given the company reports earnings in US dollars. There were only minor upward revisions to FY13 forecasts, but FY14 EPS is up 3% and FY15 is up 0.7%.

There is a bigger impact on the price target, which is up to $65.78 from $56.34, given the translational basis of USD reported earnings forecasts that feed into an AUD based price target. The broker's Overweight rating is maintained.

Analysts at Citi now expect a 0.96 read in the AUD by year end, down from 1.10 prior. Forecasts range from 0.96 down to 0.93 out to the end of 2016.

Citi, at Underweight, only pushed through a 1% increase for CSL's FY14 numbers, with FY13-15 EPS forecasts unchanged. The price target saw a similar lift, jumping to $52.79 from $49.98. The broker otherwise thinks the stock is overvalued in terms of the earnings prospects on the table and the lack of room for any disappointment.

Citi also notes that stocks such as CSL are being bought for defensive growth, a theme likely to dry up sooner, rather than later.

Macquarie's currency forecasts for FY14 are in line with where spot rates were last month. That has the AUD/USD remaining around 1.03, the AUD/EUR close to 0.79, the AUD/GBP staying close to 0.67 and AUD/CHF at around 0.98. However, while forecast changes at this point are relatively minor, the broker notes that if the Australian dollar remains at current levels through to next year, there will be some very significant upgrades across Healthcare and a number of other sectors.

Much like JP Morgan, Macquarie is starting to see good value emerging from CSL. At current FX levels, the broker notes there is now up to a 5% AUD earnings tailwind that has emerged over the past month. In numeric terms, the PE for CSL is not an "expensive looking" 22x