Neuro Rehabilitation Demand And Reimbursement Expansion Will Drive Long-Term Mobility Solutions Upside

Catalysts

About Ottobock SE KGaA

Ottobock SE KGaA develops and delivers advanced prosthetics, orthotics, neuro rehabilitation solutions and patient care services worldwide.

What are the underlying business or industry changes driving this perspective?

• Ongoing penetration of recently launched high value prosthetic platforms such as MyoPlus, Taleo Adapt and the latest C Brace and Exopulse generations is likely to sustain above market volume growth and product mix uplift, supporting continued revenue expansion and gross margin gains.
• Growing global demand for mobility and neuro rehabilitation solutions, including a rising population of stroke, spinal cord injury and amputee patients in both developed and emerging markets, should enlarge Ottobock's addressable customer base and underpin double digit core revenue growth over several years.
• Further ramp up of new reimbursement frameworks for products like C Brace in Europe, Japan and the U.S. and K2 reimbursement for Kenevo in the U.S. is expected to improve access and pricing, which should structurally enhance net margins and accelerate earnings growth as adoption increases.
• Scaling benefits from strong B2B and recovering B2C patient care volumes, combined with centralized shared services and expanded manufacturing in Bulgaria, are set to deepen operating leverage, driving higher EBITDA margins and more efficient conversion of profit into free cash flow.
• Strategic M&A in technology, products and patient care, alongside increased exposure to innovative human machine interface ventures such as ONWARD Medical, positions Ottobock to capture incremental revenue streams and higher value clinical indications, which can support sustained EPS growth and a gradual re rating of the equity as execution continues.

Assumptions

How have these above catalysts been quantified?

• Analysts are assuming Ottobock SE KGaA's revenue will grow by 6.9% annually over the next 3 years.
• Analysts assume that profit margins will increase from 3.6% today to 12.9% in 3 years time.
• Analysts expect earnings to reach €260.8 million (and earnings per share of €4.1) by about December 2028, up from €59.2 million today.
• In order for the above numbers to justify the price target of the analysts, the company would need to trade at a PE ratio of 31.7x on those 2028 earnings, down from 73.3x today. This future PE is greater than the current PE for the DE Medical Equipment industry at 20.0x.
• Analysts expect the number of shares outstanding to grow by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.11%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• A meaningful portion of current growth is driven by temporary spike events such as war related volumes in EMEA. As these normalize, the company may struggle to sustain low double digit organic growth, which would pressure revenue expansion and limit operating leverage benefits for EBITDA and earnings.
• The strategy relies heavily on continued penetration of newly reimbursed technologies like C Brace and Kenevo over several years. Any slowdown in reimbursement approvals, refitting cycles or hospital adoption could prolong payback periods on R&D and keep gross margin and net margin below expectations.
• Ongoing M&A and venture investments in areas such as human machine interface and ONWARD Medical increase execution and integration risk. Underperforming acquisitions or technologies could dilute returns on capital, raise costs and weigh on EBITDA margin and free cash flow.
• The planned divestment of the Human Mobility wheelchair business and other noncore units, including prior impairments, highlights portfolio risk. If sale proceeds or synergies fall short of expectations, the company could see weaker profitability and lower net income than implied by current leverage and margin trends.
• Management is pursuing an underpromise, overdeliver communication strategy while narrowing guidance toward the upper end of ranges, which raises the bar for future years. If growth naturally decelerates from the exceptionally strong 2025 base, investor expectations for sustained high growth could be disappointed, leading to a de rating that impacts the valuation multiple applied to earnings.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The analysts have a consensus price target of €87.5 for Ottobock SE KGaA 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 €100.0, and the most bearish reporting a price target of just €74.0.
  
• In order for you to agree with the analysts, you'd need to believe that by 2028, revenues will be €2.0 billion, earnings will come to €260.8 million, and it would be trading on a PE ratio of 31.7x, assuming you use a discount rate of 6.1%.
  
• Given the current share price of €67.85, the analyst price target of €87.5 is 22.5% higher.
  
• 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.