Paragonix Acquisition And Defense Clearances Boost Growth In Acute Care Therapies

Key Takeaways

• Strategic acquisitions and cybersecurity clearances are expected to open new revenue streams and enhance earnings.
  
• Addressing supply chain issues and productivity improvements may stabilize sales and positively impact net margins.
  
• Supply chain challenges, regulatory issues, and restructuring costs are impacting margins and could lead to financial instability and earnings volatility for Getinge.

Catalysts

Provides products and solutions for operating rooms, intensive-care units, and sterilization departments.

• Getinge anticipates that recent strategic acquisitions, including Paragonix Technologies, will contribute 3% to 5% of growth, impacting future revenue and potentially driving earnings as they integrate and capitalize on synergies.
  
• The company expects to benefit from strong growth in its Acute Care Therapies, particularly in critical care and cardiac surgery, which could boost revenue and improve net margins if cost issues are resolved.
  
• Getinge's server ventilators have received cybersecurity clearance from the U.S. Defense Health Agency, opening new revenue streams within the U.S. Department of Defense and potentially enhancing earnings.
  
• Efforts to address temporary supply chain issues, specifically in Acute Care Therapies, are expected to resolve by Q4, potentially stabilizing and improving net sales and margins.
  
• Getinge is pursuing operating leverage and sustainable productivity improvements, which are likely to positively affect net margins and overall earnings as these efforts mature.

Getinge Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Getinge's revenue will grow by 6.6% annually over the next 3 years.
• Analysts assume that profit margins will increase from 5.0% today to 9.3% in 3 years time.
• Analysts expect earnings to reach SEK 3.8 billion (and earnings per share of SEK 13.87) by about December 2027, up from SEK 1.7 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 18.5x on those 2027 earnings, down from 27.6x today. This future PE is lower than the current PE for the GB Medical Equipment industry at 35.7x.
• 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 5.49%, as per the Simply Wall St company report.

Getinge Future Earnings Per Share Growth

Risks

• Temporary supply chain challenges and production issues have impacted net sales and margins, especially in Acute Care Therapies, which could lead to revenue and earnings volatility.
  
• The suspension of CE certificates for certain products like the intra-aortic balloon pump and associated costs with addressing regulatory issues and quality improvements weigh on margins and could impact earnings.
  
• High restructuring and quality costs, particularly in Acute Care Therapies, contribute to ongoing elevated expenses, reducing net margins and impacting profitability.
  
• Currency effects and under-absorption due to production adjustments negatively affect gross profit and operating income, signaling potential risks to the bottom line if these issues persist.
  
• The provision related to ongoing negotiations in Brazil, as well as increased financial leverage from acquisitions, indicates potential financial risk that might affect net earnings and overall financial stability.

Valuation

• The analysts have a consensus price target of SEK 219.44 for Getinge 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 SEK 300.0, and the most bearish reporting a price target of just SEK 160.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be SEK 40.6 billion, earnings will come to SEK 3.8 billion, and it would be trading on a PE ratio of 18.5x, assuming you use a discount rate of 5.5%.
  
• Given the current share price of SEK 171.4, the analyst's price target of SEK 219.44 is 21.9% 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.