AI-Powered Iris Technology Will Strengthen Future Prospects

Key Takeaways

• Strong order growth and high book-to-bill ratio provide a solid foundation for future revenue and sales growth.
  
• AI advancements with Iris technology enhance product differentiation, improving pricing power and elevating margins.
  
• Uncertain U.S. regulatory clearance, lower China installations, and rising competition may impact Elekta's revenue and margins amid geopolitical and cost challenges.

Catalysts

A medical technology company, engages in the provision of clinical solutions for treating cancer and brain disorders worldwide.

• Elekta is seeing strong order growth and a high book-to-bill ratio, which provides a solid foundation for future sales growth, likely boosting future revenue.
  
• The successful launch and reception of Elekta Evo and Elekta ONE in Europe could drive significant growth in new product installations and upgrades, positively impacting revenue and gross margins.
  
• The introduction of AI-powered imaging and adaptive capabilities with Iris technology is enhancing product differentiation, expected to improve pricing power and elevate net margins.
  
• Cost reduction initiatives have already resulted in significant savings, setting a favorable backdrop for improved earnings and operating margins in the future.
  
• Increased focus on aftersales and service opportunities from an expanding global installed base is expected to drive higher recurring revenues, supporting sustainable earnings growth.

Elekta Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Elekta's revenue will grow by 6.9% annually over the next 3 years.
• Analysts assume that profit margins will increase from 5.8% today to 9.7% in 3 years time.
• Analysts expect earnings to reach SEK 2.1 billion (and earnings per share of SEK 5.52) by about April 2028, up from SEK 1.0 billion today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 14.6x on those 2028 earnings, down from 17.8x today. This future PE is lower than the current PE for the GB Medical Equipment industry at 28.9x.
• 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

• The uncertainty in receiving U.S. regulatory clearance for Elekta Evo, the delay in installations in the U.S., and potential regulatory headwinds could hinder expected revenue growth from this important market.
  
• Expected lower installation volumes in China, linked to its continued market weakness, despite strong order intake, may not convert into sales soon, potentially impacting revenue.
  
• Elekta faces increasing competition from local companies in China, alongside potential shifts in market share, which can adversely affect revenue and market positioning in the region.
  
• Higher amortization costs, following recent product launches, are expected to continue as a headwind on net margins and overall earnings.
  
• Mixed dynamics in the service business, including geographical challenges and higher material costs, have negatively impacted margins and could continue to pressure net margins if inflation persists.

Valuation

• The analysts have a consensus price target of SEK67.071 for Elekta 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 SEK108.0, and the most bearish reporting a price target of just SEK51.5.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be SEK21.8 billion, earnings will come to SEK2.1 billion, and it would be trading on a PE ratio of 14.6x, assuming you use a discount rate of 6.5%.
• Given the current share price of SEK48.44, the analyst price target of SEK67.07 is 27.8% 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.