US And China Health Trends Will Create Lasting Market Impact

Key Takeaways

• Growing demand in major markets and effective price increases, particularly in cardiovascular and neurovascular, are driving higher revenues and margins.
  
• Expansion in China and growth in high-margin consumables are boosting market share, profitability, and cash flow.
  
• Temporary tailwinds, structural pricing pressures, lagging innovation, and operational risks threaten Terumo's earnings growth and competitive position amid a challenging macro and regulatory environment.

Catalysts

Engages in the manufacture and sale of medical products and equipment in Japan, Europe, China, the United States, Asia, and internationally.

• Strong volume growth and sustained demand in the U.S. and China, driven by an aging population and rising chronic disease prevalence, are resulting in record-high quarterly revenues for Terumo; these structural health trends are likely to support ongoing top-line growth.
  
• Pricing initiatives, particularly in the Cardiovascular and Neurovascular segments, have been more effective than anticipated-price increases are being embedded into contracts and further price improvements are expected through contract renewals, supporting higher gross and operating margins despite expected headwinds from tariffs.
  
• Expansion of sales channels and volume commitments in China, especially in Neurovascular products, has enabled Terumo to gain market share and increase prices, counteracting typical negative VBP (Volume-Based Procurement) effects and positioning the company for future revenue growth in this key emerging market.
  
• Broad-based deployment and ramp-up of high-margin consumables, such as Rika in Global Blood Solutions, are driving improved production efficiency and a more favorable revenue mix; this recurring consumable revenue base is likely to further enhance profitability and cash flow.
  
• Ongoing investment in and success of minimally invasive and specialized intervention systems are leading to higher patient volumes and improved market share, particularly in high-growth areas like oncology and peripheral intervention, giving Terumo a sustainable driver for above-market revenue and earnings expansion.

Terumo Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Terumo's revenue will grow by 5.7% annually over the next 3 years.
• Analysts assume that profit margins will increase from 12.0% today to 14.7% in 3 years time.
• Analysts expect earnings to reach ¥180.9 billion (and earnings per share of ¥123.45) by about August 2028, up from ¥124.9 billion today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as ¥157.3 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 30.3x on those 2028 earnings, down from 32.6x today. This future PE is greater than the current PE for the JP Medical Equipment industry at 16.9x.
• Analysts expect the number of shares outstanding to decline by 0.62% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 5.63%, as per the Simply Wall St company report.

Terumo Future Earnings Per Share Growth

Risks

• The full-year impact from tariffs is expected to be around ¥10 billion, and while Terumo plans to pass these costs onto customers through price increases, there is significant uncertainty around the company's ability to fully offset this, especially if competitive dynamics or contracting buyers (such as hospital group purchasing organizations) resist price hikes-this could compress net margins and limit earnings growth.
  
• The company's improved profitability in Q1 benefited from favorable foreign exchange on inventory and delayed VBP (volume-based procurement) in China, both of which are temporary; as VBP expands in China and FX tailwinds subside, structural pricing pressure and less supportive currency trends could negatively impact revenue and margins.
  
• Despite flat R&D spending year-on-year and a focus on cost control, the absence of significant increases in R&D or clear new product launches raises a risk that Terumo's innovation pipeline may lag behind peers, potentially eroding competitive positioning and limiting long-term revenue growth.
  
• Growth in core cardiovascular and blood solutions segments is being driven by volume as much as price, but there are signals of temporary boosts (e.g., catch-up in procedure volumes post-COVID, delays in procurement cycles), while over-reliance on these mature product lines might limit above-market growth and earnings momentum once the temporary effects fade.
  
• Rising SG&A costs alongside business expansion, as well as ongoing supply chain and production delays (noted in certain product lines and regions), introduce operational risks that could increase costs or disrupt delivery, negatively affecting both revenue and free cash flow if not effectively managed, especially given broader macro risks like global trade tensions or heightened regulation.

Valuation

• The analysts have a consensus price target of ¥3219.333 for Terumo 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 ¥4000.0, and the most bearish reporting a price target of just ¥2550.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be ¥1227.3 billion, earnings will come to ¥180.9 billion, and it would be trading on a PE ratio of 30.3x, assuming you use a discount rate of 5.6%.
• Given the current share price of ¥2764.5, the analyst price target of ¥3219.33 is 14.1% 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.