Rising Interest Rates And Tariffs Will Weaken US MedTech Margins

Key Takeaways

• Reliance on acquisitions and exposure to rising rates and tariffs heighten operational risk and threaten predictable earnings and margin stability.
  
• Structural decline in key U.S. markets and digital disruption may erode market share, compress margins, and hinder long-term growth.
  
• Strong organic growth, innovation, operational resilience, and positive animal health trends position the company for long-term revenue expansion and enhanced investor appeal.

Catalysts

Engages in the animal health business worldwide.

• The company is exposed to persistent and growing headwinds from rising interest rates and tightening financial conditions globally, which are inflating borrowing costs and posing a threat to earnings and net margins, especially given Vimian's historically acquisition-driven growth model and significant level of net debt.
  
• There is increasing regulatory scrutiny and uncertainty regarding tariffs on veterinary and animal health imports, with around half of Vimian's U.S. sales already exposed to tariffs and further escalation likely to hit adjusted EBITDA and revenue growth, while also forcing new supply chain costs and long-term compliance expenses.
  
• Heavy reliance on mergers and acquisitions continues to heighten operational risk and creates ongoing integration and legal costs, as evidenced by high levels of legal fees and acquisition-related charges this quarter, which are likely to erode future earnings predictability and margin stability.
  
• The U.S. MedTech segment faces structural demand deterioration, with the underlying orthopedic market declining, continued softness in elective surgery, and a highly price-sensitive U.S. customer base; as 96 percent of dogs are uninsured, discretionary procedures are frequently postponed or cancelled, pressuring organic revenue growth and compressing margins in coming years.
  
• Accelerating commoditization and digital disruption in basic veterinary equipment and services, coupled with increasing bargaining power of large veterinary clinic consolidators, is expected to squeeze Vimian's market share and profitability over the long term, threatening both revenue retention and margin performance across key segments.

Vimian Group Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on Vimian Group compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Vimian Group's revenue will grow by 11.2% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from 4.9% today to 16.8% in 3 years time.
• The bearish analysts expect earnings to reach €90.3 million (and earnings per share of €0.17) by about July 2028, up from €19.3 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 23.0x on those 2028 earnings, down from 104.5x today. This future PE is lower than the current PE for the SE Medical Equipment industry at 40.9x.
• Analysts expect the number of shares outstanding to grow by 0.28% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 5.79%, as per the Simply Wall St company report.

Vimian Group Future Earnings Per Share Growth

Risks

• Sustained high growth in key business segments such as Specialty Pharma, Veterinary Services, and Diagnostics, with double-digit organic growth, ongoing product launches, and margin improvements, suggests strong revenue and profit potential in the long term.
  
• Active investment in clinician education, product innovation, and strategic M&A (including recent bolt-on acquisitions) positions the company to capture untapped market segments and expand its addressable market, supporting recurring revenue and potential future earnings growth.
  
• Improved ESG ratings and reduction in emissions, along with strengthened supplier controls, enhance Vimian Group's reputation and operational resilience, potentially attracting long-term investors and supporting a stable or rising share price.
  
• The company's ability to mitigate external headwinds such as tariffs through supply chain adjustments, price negotiation, and right-shoring reduces the risk of significant profit erosion and implies potential for net margin stability.
  
• Positive secular tailwinds in animal health-including increasing global pet ownership, humanization of pets, and increased spending on animal care-directly benefit diversified animal health companies like Vimian, driving long-term revenue expansion and supporting the case for a potential share price increase.

Valuation

• The assumed bearish price target for Vimian Group is SEK37.32, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Vimian Group'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 SEK51.61, and the most bearish reporting a price target of just SEK37.32.
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be €537.0 million, earnings will come to €90.3 million, and it would be trading on a PE ratio of 23.0x, assuming you use a discount rate of 5.8%.
• Given the current share price of SEK43.36, the bearish analyst price target of SEK37.32 is 16.2% 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.