Post by
pibopibopibopib on Jan 19, 2023 4:30pm
US $ versus CAN $
Alaris In our coverage universe, Alaris is one of the companies most exposed to swings in the CAD/USD exchange rate as over 85% of its revenues are in U.S. dollars, while its head office costs and large $61.6 million annual distribution are both in Canadian dollars, necessitating the regular repatriation of U.S. dollars to Canadian. However, as partner distributions are known in advance, hedging is straightforward using forward contracts which we estimate cover 75-80% of Canadian dollar expenses and distributions, while the company’s U.S. dollar debt acts as a natural hedge against U.S. partner redemptions. Given the significant USD exposure, we believe Alaris may eventually opt to make it its reporting currency, which would significantly reduce earnings volatility, though transactional exposure would remain as long as the dividend is paid in Canadian dollars. Using a discounted cash flow valuation, we arrive at a $21.50 target and rate Alaris Outperform.