European Launches And Chinese Recovery Will Expand Precision Radiotherapy Adoption

Key Takeaways

• Successful software launches and service expansion are boosting sales growth, margins, and predictable cash flow, especially as global adoption of precision radiotherapy accelerates.
  
• Market recovery in China and emerging regions, supported by cost control and strong cancer treatment demand, positions Elekta for sustained earnings and multi-year revenue growth.
  
• Margin and earnings outlook is pressured by tariff and FX headwinds, weak order trends, regional uncertainty, rising costs, and intensifying competitive and regulatory 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.

• Continued strong momentum and successful launches of Elekta Evo and Elekta ONE software in Europe are driving double-digit sales growth and gross margin improvement in the region; this suggests that further global rollouts of these advanced solutions, aligned with increasing demand for precision radiotherapy, may accelerate overall revenue and margin expansion as adoption broadens.
  
• Rebuilding of the order backlog and anticipated return to growth in China in the second half of the fiscal year, underpinned by Elekta's leading market position and government-supported cancer programs, points to renewed access to a large addressable market and significant top-line growth potential.
  
• Expansion of high-margin service and software recurring revenue, evidenced by consistent 4% service growth and increasing software traction, adds predictable cash flow and supports higher net margins as more customers attach ongoing digital and planning solutions to hardware sales.
  
• Cost rationalization measures-including SG&A reductions and supply chain productivity enhancements-are actively offsetting headwinds from tariffs and FX, putting Elekta on a path to regain pre-pandemic gross margin and EBIT margin levels, thereby supporting medium-term earnings recovery.
  
• A rising global cancer burden from aging populations, combined with infrastructure growth in emerging markets like India and China, ensures a sustained, long-term demand backdrop for advanced radiotherapy solutions-underpinning a multi-year revenue growth profile for Elekta if current valuation discounts this opportunity.

Elekta Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Elekta's revenue will grow by 4.4% annually over the next 3 years.
• Analysts assume that profit margins will increase from 1.5% today to 9.2% in 3 years time.
• Analysts expect earnings to reach SEK 1.9 billion (and earnings per share of SEK 4.86) by about September 2028, up from SEK 274.0 million today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as SEK1.4 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 13.3x 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 49.4x.
• 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 6.47%, as per the Simply Wall St company report.

Elekta Future Earnings Per Share Growth

Risks

• Ongoing and increasing tariff and FX headwinds are putting significant pressure on Elekta's gross margin and EBIT margin, and while management is taking action through pricing and cost optimization, there is limited ability to pass on price increases to existing backlog orders, directly impacting net margins and earnings.
  
• Order softness and delayed revenue recognition in two historically high-margin regions (the U.S. and China) due to FDA approval delays for new products and a thin order backlog in China could result in weaker top-line growth and sustained regional revenue/margin volatility.
  
• Elekta's guidance and growth outlook rely heavily on an eventual recovery in China and strong momentum in Europe, but both regions face risks: China's recovery is based on a still-rebuilding order book and unpredictable macro/policy factors, and European growth may not be sustainable at current high levels, leading to risk for both revenue stability and forward-looking cash generation.
  
• Increasing net R&D costs, coupled with a declining trend in R&D capitalization rates, may limit margin improvement in the medium term, particularly if gross margin pressure from FX and tariffs persists and if innovation spending does not translate quickly enough into profitable new products.
  
• Market dynamics such as greater buyer consolidation, continued regulatory/regional uncertainty (notably around U.S. approvals), and heightened global pricing competition (including from Asian entrants) may compress Elekta's future net margins and challenge currently anticipated earnings expansion.

Valuation

• The analysts have a consensus price target of SEK53.786 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 SEK34.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be SEK20.3 billion, earnings will come to SEK1.9 billion, and it would be trading on a PE ratio of 13.3x, assuming you use a discount rate of 6.5%.
  
• Given the current share price of SEK45.1, the analyst price target of SEK53.79 is 16.1% 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.