VISUMAX 800 Approval In China Will Strengthen Future Market Position

Key Takeaways

• Early VISUMAX 800 approval in China and strong order backlog for KINEVO 900 S hint at significant future revenue growth.
  
• Shift towards premium IOLs and effective cost measures promise higher net margins and earnings stability.
  
• Declining sales growth, profitability pressures, and challenging market conditions in China threaten revenue stability and earnings, amid macroeconomic uncertainty and unfavorable product mix impacts.

Catalysts

Operates as a medical technology company in Germany, rest of Europe, North America, and Asia.

• The recent approval of the VISUMAX 800 in China, earlier than expected, positions Carl Zeiss Meditec AG for potential revenue growth. The launch is expected to boost higher ASP (Average Selling Price) for both devices and treatment packs, enhancing future revenue streams.
  
• The significant recovery in order entry, particularly with a strong order backlog for the newly launched KINEVO 900 S, indicates robust future sales potential. This trend suggests an upcoming revenue increase as these backlogged orders are fulfilled.
  
• The ongoing shift towards more premium IOLs (Intraocular Lenses) and increased volume sales despite price pressures due to volume-based procurement in China presents an opportunity for higher future net margins.
  
• Continued consolidation and integration of DORC are driving revenue growth, particularly in the U.S., and expanding recurring revenue streams, positively impacting earnings.
  
• Cost control measures, especially in R&D, coupled with the ramp-up of the new product lines like KINEVO 900 S and VISUMAX 800, are expected to stabilize or modestly improve EBITA and EBITA margins, enhancing overall earnings stability.

Carl Zeiss Meditec Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Carl Zeiss Meditec's revenue will grow by 7.4% annually over the next 3 years.
• Analysts assume that profit margins will increase from 7.5% today to 11.0% in 3 years time.
• Analysts expect earnings to reach €283.4 million (and earnings per share of €3.22) by about April 2028, up from €157.0 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting €340 million in earnings, and the most bearish expecting €225 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 20.5x on those 2028 earnings, down from 32.8x today. This future PE is lower than the current PE for the GB Medical Equipment industry at 26.7x.
• Analysts expect the number of shares outstanding to decline by 2.48% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 5.42%, as per the Simply Wall St company report.

Carl Zeiss Meditec Future Earnings Per Share Growth

Risks

• The decline in organic sales growth and the adjusted revenue decline of minus 7.3% suggest challenges in achieving consistent revenue growth, which could impact long-term revenue stability.
  
• The unfavorable product mix and pressure on high-margin categories caused a significant decline in EBITA margin from 9.7% to 7.2%, impacting profitability.
  
• Weak market conditions in China, driven by a softer investment climate and pricing pressures, especially for intraocular lenses (IOLs), pose risks to revenue and market share in a significant geographic segment.
  
• The negative impact on net income, which decreased by 57.1% due to several factors, including higher interest expenses and negative foreign exchange hedging results, raises concerns about the company's ability to maintain healthy earnings.
  
• The continued macroeconomic uncertainty, including potential tariff implications and reliant expectations on stimulus measures in China, presents risks to both revenue growth and net margins.

Valuation

• The analysts have a consensus price target of €61.219 for Carl Zeiss Meditec 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 €86.5, and the most bearish reporting a price target of just €41.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be €2.6 billion, earnings will come to €283.4 million, and it would be trading on a PE ratio of 20.5x, assuming you use a discount rate of 5.4%.
• Given the current share price of €58.8, the analyst price target of €61.22 is 4.0% higher. 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.