Rising Trade Barriers And Competition Will Squeeze MedTech Margins

Key Takeaways

• Rising global trade barriers, reimbursement pressures, and aggressive competition are constraining margins, threatening earnings predictability, and slowing potential revenue growth across Elekta's markets.
  
• Underinvestment in R&D and operational challenges in emerging markets are eroding Elekta's technological edge and compressing both current and future profitability.
  
• Successful new product launches and margin improvements, supported by strong regional performance and cost efficiencies, are positioning Elekta for continued profitable growth despite market challenges.

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.

• Persistent global economic protectionism and rising trade barriers are leading to sustained tariff costs and foreign exchange volatility, directly reducing Elekta's gross and EBIT margins and threatening the predictability of earnings into the future.
  
• The expansion of value-based care models is creating downward pressure on reimbursement rates for high-cost medical devices, which could significantly dampen demand for Elekta's advanced radiotherapy systems and slow long-term revenue growth even as the installed base ages.
  
• Underinvestment in research and development compared to competitors leaves Elekta vulnerable to losing technological leadership, diminishing future recurring revenue potential from software and services, and further constraining margin expansion if product cycles slip behind those of rivals.
  
• Intensifying competition from large, diversified medtech players and the accelerated entry of digital and AI-driven diagnostic alternatives may capture share from Elekta's core business, leading to decelerating top-line growth and increased pressure on net margins in both traditional and emerging markets.
  
• Increasing exposure to price-sensitive emerging markets, coupled with ongoing operational and integration challenges-particularly in China and India-are forcing more frequent price concessions and compressing earnings, making Elekta's mid-term and long-term profit trajectory less certain.

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 1.0% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from 1.5% today to 8.2% in 3 years time.
• The bearish analysts expect earnings to reach SEK 1.5 billion (and earnings per share of SEK 3.93) by about September 2028, up from SEK 274.0 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 10.4x on those 2028 earnings, down from 62.9x today. This future PE is lower than the current PE for the GB Medical Equipment industry at 50.2x.
• 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 6.45%, as per the Simply Wall St company report.

Elekta Future Earnings Per Share Growth

Risks

• Strong performance and acceptance of new product launches such as Elekta Evo and Elekta ONE, especially in Europe, are driving robust sales growth and improving margins, which may result in revenue and earnings expansion despite regional headwinds.
  
• Momentum in EMEA, now the largest region accounting for 40 percent of group sales, is underpinned by new products and software, contributing to profitable growth and supporting group gross margins, which may offset weaknesses elsewhere.
  
• Solid order development in China, with a book-to-bill ratio consistently above 1 and expectations of backlog conversion to revenue in the second half of the year, could drive an upswing in sales and operating income in Asia-Pacific.
  
• Ongoing price improvements from both general increases and recent product launches, alongside active measures to mitigate the impact of tariffs and foreign exchange volatility, are likely to underpin gross margin recovery and potentially expand net margins over time.
  
• Substantial improvements in operating cash flow and continued focus on productivity enhancements and cost reduction initiatives provide Elekta with financial resilience, supporting future earnings growth and stronger free cash flow despite short-term pressures.

Valuation

• The assumed bearish price target for Elekta is SEK34.0, 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 SEK34.0.
  
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be SEK18.4 billion, earnings will come to SEK1.5 billion, and it would be trading on a PE ratio of 10.4x, assuming you use a discount rate of 6.5%.
  
• Given the current share price of SEK45.1, the bearish analyst price target of SEK34.0 is 32.6% 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.