by Mint Asset Management
By: Tom Deacon, Assistant Portfolio Manager at Mint Asset Management. (Image: Supplied)
Healthcare has earned its defensive reputation. Demand for respiratory support, plasma therapies, sleep-apnoea masks and cochlear implants don’t flow with typical business cycles. Cash flows are sticky and the sector tends to hold up when stocks fall. By the way, that still worked in 2026: on the days the MSCI World IT index dropped ~2% or more, world healthcare beat tech by roughly ~3% on average.
And yet the sector has been no safe harbour. It was unloved for most of 2025 - in August of that year it traded ~30% below global equities, its widest discount in over a decade, before a 4Q25 bounce. Then it lagged again into 2026, ranking among the weakest S&P sectors year-to-date and at near-record-low relative earnings multiples. So, why in recent times has healthcare behaved as a sector so differently to investors normally expect?
The diagnosis
Being defensive quietly bundles two different promises. One is resilience of sales and cash flows that survive a downturn in the broader economy, or broader business cycle pressures. The other is resilience of the share price - the drawdown protection investors typically pay a premium for.
For a premium-rated compounder, the multiple you pay for 'safety' is itself the risk. When demand holds but perception about what should be paid for the asset changes and the price falls, the defensiveness that was expected never materialises. That's the placebo … a pill that soothes without protecting.
The evidence for the diagnosis is in the operating accounts of four quality franchises - and the operating accounts are far more interesting than recent share price movements, in our view.
Strategic reset, structural question — CSL
For a generation the archetypal healthcare compounder, CSL entered this period from a position of strength. Then the operating environment turned on multiple fronts at once, and the stock roughly halved over the following year.
The 1H26 result showed many separate policy and competitive shocks landing simultaneously. Group revenue and net profit both declined. In Behring, immunoglobulins declined — a decent chunk of that the mechanical effect of the US Medicare Part D redesign, with underlying demand still growing modestly half on half — while albumin fell precipitously on Chinese policy changes and Kcentra lost ground to competition. In Vifor, the iron franchise dropped as key products met generic competition in Europe and the US.
The latter is an unfortunately permanent shift that forced a ~US$1.1b intellectual-property impairment, the centrepiece of the very large ~US$2.1b restructuring and impairment charge and the largest non-recurring item in CSL's history. Then Seqirus, ground zero of the original downgrade cycle, is absorbing a US flu-vaccination environment that deteriorated faster than anyone modelled. Notably, however, its seasonal influenza revenue did reasonably well on a comparative basis.
Set against that, the growth engines kept working and Behring's operating margin expanded (a key value driver). Management's response: a transformation program targeting US$500–550m of annual savings by FY28, R&D sites cut from eleven to six - alongside signalling a shift to in-house R&D – in itself an interesting choice that probably deserves another article. The cherry-on-top ~US$1.5b US plasma-manufacturing investment that appears to be underutilised and a Seqirus demerger that has been abandoned.
FY26 guidance was maintained at the half and the 1H result would imply a second-half acceleration of a kind CSL has never had to deliver before. That is now the operational test – can a company built on compounding execute a turnaround?
Exogenous disruption — ResMed
ResMed is the mirror image: nothing in the operating account has broken, and the market de-rated it for other reasons (namely GLP-1’s [weight-loss drugs that may shrink the sleep-apnoea patient pool] and potential competitor re-entry). We see an operating record that is the strongest of the four names. FY25 revenue grew well across the franchise, but margin story is the standout. Gross margin expanded ~6% in two and a half years driven by procurement, manufacturing and logistics efficiencies. FY25's incremental revenue converting to gross profit at very strong incremental margins. Operating margins were commensurately strong, free-cash-flow conversion above 100% and the balance sheet is robust.
Share price pressure for ResMed comes entirely from perceived conditions outside the reported P&L. On GLP-1s, management's framing has gone from defence to offence – awareness and top of funnel fillers. Quarterly revenue growth shows no sign of any impact, but it is the later stage TAM that investors are worried about (and maybe rightly so, albeit a long-dated risk). On tariffs, the new Calabasas facility doubles the US manufacturing footprint as capex-light mitigation.
With respect to competitive re-entry - Philips' pending reapproval for device manufacturing that ends four years of effectively uncontested share gains is the one operating variable ResMed genuinely cannot control. The market has chosen to price the narrative rather than the numbers and the numbers keep compounding regardless.
Premium expectations meet earnings reset — Cochlear
Cochlear is the textbook defensive-quality holding ~60% of the global implant market, an upgrade/services annuity, a hearing-loss tailwind and a net-cash balance sheet. In April 2026 it cut FY26 underlying-profit guidance by ~30% and unsurprisingly the shares had their worst day on record, part of a ~58% twelve-month decline.
The operating decomposition matters more than the drawdown, because the reset is concentrated in one place: developed-market implant surgery. FY25 had looked healthy — implant units up low double digits, cochlear-implant revenue up high single digits, and a November/December period running well on a unit growth basis due to the Nexa launch. By the Q3 trading update, developed-market implant revenue had gone flat in constant currency – with momentum evaporating as referral pipelines thinned and European hospital capacity constrained elective surgical throughput.
Around it clustered a range of amplifiers: emerging-market units still growing strongly but at lower-tier China mix and now facing reimbursement cuts in special access zones; a decent Middle East receivables provision; a stronger Australian dollar costing NPAT a decent rate, lower factory overhead recovery as volumes fell below plan and cost-base reshaping charges.
Two operational nuances cut against the headline. First, the annuity is recovering, not broken. Services revenue - which fell in FY25 as the Nucleus 8 upgrade cycle tapered - swung to low double digit growth in Q3 with Acoustics a touch lower. Second, gross margin erosion is substantially a volume and mix effect, not price: the deleverage of fixed manufacturing costs is mechanical and reverses when volumes return.
Nothing structural? Hearing loss is not cyclical, but hospital budgets, currency and factory loading all are, and with a price built on 40–50x PE expectations had no tolerance for any of them. The FY27 guidance in the upcoming August results season will show whether flat developed-market surgery volumes were an air-pocket or a level shift with lower Middle East shipments, ICE and border issue, AI reviews of high value medical implant funding approvals and higher competition all potentially to blame.
The recovery exhibit — Fisher & Paykel
FPH is the standout: operating conditions continued to track favourably led by very strong device revenue. The stock is up ~13% over the last twelve months drive primarily by the FY26 result which was a beat on every line: revenue, gross and operating margins were all up meaningfully. Free cash flow was the kicker and net cash improved from an already robust position.
As usual, divisional composition is the real story. Hospital consumables grew strongly and did so despite low US respiratory admissions. This is the strongest evidence, yet that Optiflow adoption is structural clinical-practice change rather than a pandemic artefact. Anaesthesia, growing very strongly and already a meaningful proportion of new-applications revenue, is tracking faster than nasal high flow did at the same stage. Hospital hardware grew exceptionally well in FY26 on the US Airvo 3 rollout — pent-up demand that management concedes likely flattens in FY27, though even a 20% fall would leave a robust 3-year hardware CAGR (vs low-mid single digit prior).
The one soft spot: OSA masks grew just 4% and has been downgraded by management sequentially. Read alongside ResMed's 12% US mask growth, the share appears to have moved between the two companies in this note - competitive rotation, not demand destruction, which quietly undermines the sector-level GLP-1 bear case. We pin this squarely on the cadence of new OSA mask release. On the margin side, US tariffs from NZ which were cut from 15% to 10% gives the firm back a chunk of margin, partly offset by new Middle East freight and materials headwinds. All of this margin impact, impressively, will be absorbed through efficiency. At roughly 43x FY27 EPS, the market is paying up front for a lot of growth and the same premium that punished holders of the other three names is now the thing FPH must underwrite for investors backing it as the ‘most defensive of the pack’.
What does it all mean?
The defensive thesis isn't dead, but operating detail is always more nuanced than the 30,000-foot view. Fisher & Paykel and ResMed are genuinely compounding on every line. Cochlear's implant volumes stalled while its Services annuity swung back - half the business is doing exactly what the defensive label promises. CSL's mature franchises absorbed four simultaneous policy and competitive shocks while its launch portfolio offset the negatives modestly.
The 2025/26 de-ratings were about idiosyncratic and exogenous operating shocks — a drug class, a reimbursement redesign, a vaccination change, a hospital budget, a generic entry — landing on thin investor patience … not the demise of underlying demand in all cases, necessarily. Operational defensiveness largely survived the stress test. What didn't survive was the assumption that operational defensiveness buys you share-price defensiveness.
Where to next?
Defensiveness isn't conferred by a sector code. It's earned by business model, the volatility of revenue and earnings streams – which is subsequently reflected in share price volatility. The placebo is a reflex that treats a healthcare label as a substitute for underwriting the two risks the reputation hides: what you pay for ‘quality’ and what can hit the business from outside its P&L. These four names have just demonstrated the full range. The near-term tests are operational and will ultimately determine whether ASX healthcare regains the defensive tag its well known for.
At Mint, we are heavily focussed on operational performance markers with growth-at-a-reasonable price as our key framework for making investment decisions.
Sources: Mint Analysis, Company Disclosures, FactSet.
Mint Asset Management is an independent investment management business based in Auckland, New Zealand. Mint Asset Management is the issuer of the Mint Asset Management Funds. Download a copy of the product disclosure statement at mintasset.co.nz
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