Pricing Wars And Supply Chain Risks Will Dampen Radiotherapy Outlook

Key Takeaways

• Shifting healthcare priorities, stronger competition, and regulatory delays are straining Elekta's revenue growth, market share, and product launch timelines.
  
• Geopolitical tensions and ongoing price pressure are threatening Elekta's profitability, supply chain reliability, and expansion in critical emerging markets.
  
• Strong product launches, expanding margins, and adoption of advanced therapies position Elekta for sustainable growth and profit improvement despite lingering short-term market softness.

Catalysts

A medical technology company, provides clinical solutions for treating cancer and brain disorders in the Americas, Europe, the Middle East, Africa, and the Asia Pacific.

• Hospitals and clinics worldwide are facing intensifying cost pressures and a transition towards value-based healthcare, which could significantly dampen demand for Elekta's high-cost radiotherapy systems, leading to slower revenue growth and long-term contraction in the company's addressable market.
  
• Ongoing geopolitical instability and trends toward deglobalization threaten the reliability of Elekta's supply chain and could delay the deployment of key equipment in critical emerging markets, leading to persistent revenue volatility and undermining growth plans in Asia and other regions.
  
• Competitive threats from rapidly advancing non-radiation cancer therapies, such as immunotherapy and precision medicine, risk eroding the role of radiation oncology as a first-line treatment, putting Elekta's core business under increasing structural pressure and resulting in flat or declining system revenues over time.
  
• Persistent pricing wars, particularly from large players like Varian and Siemens Healthineers and low-cost market entrants, are likely to continue eroding Elekta's gross margins and forcing further price concessions on both systems and service contracts, compressing net margins and reducing overall profitability.
  
• Delays and regulatory hurdles, such as the ongoing lack of FDA clearance for Elekta Evo in the United States and longer device approval cycles, put product launches at risk and extend sales cycles, increasing the likelihood of continued order weakness in key markets and flattening earnings momentum.

Elekta Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on Elekta compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Elekta's revenue will grow by 1.1% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from 1.3% today to 10.4% in 3 years time.
• The bearish analysts expect earnings to reach SEK 1.9 billion (and earnings per share of SEK 4.7) by about August 2028, up from SEK 237.0 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 9.3x on those 2028 earnings, down from 76.6x today. This future PE is lower than the current PE for the GB Medical Equipment industry at 44.8x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.4%, as per the Simply Wall St company report.

Elekta Future Earnings Per Share Growth

Risks

• Elekta's strong launch momentum for new products like Evo and Elekta ONE Planning, combined with exceptional customer feedback in Europe and positive growth in software orders, suggests new high-margin revenue streams could accelerate both revenue and net margin growth over the coming years.
  
• The global installed base is growing at approximately 4% per year, which drives recurring, predictable service and upgrade revenue, supporting long-term stability and potential growth in both revenue and net earnings.
  
• Despite short-term softness in China and the U.S., management reports clear signs of recovering demand in China, with order growth turning positive and sizeable pent-up demand remaining, creating a pathway for future sales and supporting long-term top line expansion.
  
• Elekta has consistently expanded gross margins, achieving its best Q4 margin in five years and explicitly articulating ambitions to return to pre-pandemic gross margin levels above 40% and operating margins north of 14%, indicating a credible strategy for improving profitability.
  
• Advances and customer wins in adaptive radiotherapy, brachytherapy, and integrated software platforms-along with the industry-leading comprehensive product portfolio-position Elekta to benefit from the secular trend of precision medicine and multidisciplinary cancer care, which could drive sustainable revenue and earnings growth even in competitive environments.

Valuation

• The assumed bearish price target for Elekta is SEK39.0, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Elekta's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of SEK108.0, and the most bearish reporting a price target of just SEK39.0.
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be SEK18.6 billion, earnings will come to SEK1.9 billion, and it would be trading on a PE ratio of 9.3x, assuming you use a discount rate of 6.4%.
• Given the current share price of SEK47.5, the bearish analyst price target of SEK39.0 is 21.8% lower. Despite analysts expecting the underlying buisness to improve, they seem to believe the market's expectations are too high.
• 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.