Expanding Into Denmark, Germany, And Italy Will Strengthen Future Position In Hearing Care Market

Key Takeaways

• Strategic divestments and focus on hearing healthcare aim to reduce complexity, improve margins, and streamline operations.
  
• Expansion of high-performing product portfolio and bolt-on acquisitions target growth, leveraging efficient innovation and enhanced market presence.
  
• Intensifying competition and market challenges threaten Demant's market share, revenue, and margins, with uncertainties around U.S. tariffs and exchange rates affecting future earnings.

Catalysts

Operates as a hearing healthcare company in Europe, North America, Asia, Pacific region, and internationally.

• Demant's 2025 outlook anticipates a 3% to 7% organic revenue growth, driven by market share recovery in the U.S. managed care channel and growth in the French hearing aid market following reform, which could positively impact revenue.
  
• The strategic divestment of the CI and communication businesses in 2024 aims to streamline operations and focus on core hearing healthcare, potentially improving net margins by reducing complexity and operational costs.
  
• Continued expansion of a high-performing and efficient product portfolio, including new in-ear devices powered by a deep neural network (DNN), is expected to drive growth and maintain strong average selling prices (ASP), positively impacting revenue.
  
• The company plans for bolt-on acquisitions within hearing care, particularly in key markets like Denmark, Germany, and Italy, which could enhance revenue growth through increased critical mass and market presence.
  
• Demant's strong cash flow generation and restructuring efforts are expected to support ongoing investments in R&D and operational scaling, potentially improving earnings through enhanced operating leverage.

Demant Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Demant's revenue will grow by 7.2% annually over the next 3 years.
• Analysts assume that profit margins will increase from 12.9% today to 13.4% in 3 years time.
• Analysts expect earnings to reach DKK 3.7 billion (and earnings per share of DKK 18.86) by about February 2028, up from DKK 2.9 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 18.1x on those 2028 earnings, down from 19.5x today. This future PE is lower than the current PE for the GB Medical Equipment industry at 33.0x.
• Analysts expect the number of shares outstanding to decline by 3.42% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 5.59%, as per the Simply Wall St company report.

Demant Future Earnings Per Share Growth

Risks

• The competitive environment in the hearing aids sector is intensifying, which negatively impacted market share in key regions like the U.S. This increased competition could put downward pressure on revenues and margins.
  
• The diagnostic business faced challenges due to soft market conditions and access issues in China, which could continue to impact revenue growth if these conditions persist.
  
• Exchange rate fluctuations and a high share of rechargeable units negatively affected gross margin, which, if sustained, could put pressure on future earnings.
  
• The company experienced significant market share losses in the managed care channel in the U.S., resulting in growth headwinds that could reduce future revenue and operating leverage.
  
• Despite a high growth outlook, there are uncertainties such as potential tariffs in the U.S. and high comparative figures from 2024, which could impact the company's ability to meet its EBIT expectations.

Valuation

• The analysts have a consensus price target of DKK297.833 for Demant 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 DKK360.0, and the most bearish reporting a price target of just DKK240.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be DKK27.6 billion, earnings will come to DKK3.7 billion, and it would be trading on a PE ratio of 18.1x, assuming you use a discount rate of 5.6%.
  
• Given the current share price of DKK265.0, the analyst price target of DKK297.83 is 11.0% 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.