Company Reports

Narrow-moat Fresenius SE turned in strong second-quarter results and highlighted that it expects to deliver results on the top end of its profit outlook range in 2024. At first glance, we do not plan to change our EUR 50 fair value estimate on these trends, but this operating momentum appears promising for the company's undervalued shares.

Narrow-moat Fresenius SE held an investor event on its Helios caregiving segment in which it mildly raised near- and intermediate-term guidance for that segment. However, that mildly improved outlook was not material enough to change our EUR 50 fair value estimate, and shares remain significantly undervalued, in our opinion.

Narrow-moat Fresenius SE turned in strong first-quarter results and increased its 2024 outlook on strength in its Kabi injectable therapies segment. At first glance, we do not plan to change our EUR 50 fair value estimate, and shares remain undervalued.

GLP-1 drug use is increasing materially in patients with diabetes and obesity, and uncertainty around GLP-1 expansion has added risk to dialysis stocks even as pandemic challenges, including excess mortality and labor costs, are easing for the narrow moat dialysis companies we cover—Baxter, DaVita, Fresenius Medical Care, and Fresenius SE. Despite the concerns, new data rolling in on GLP-1s appears roughly in line with our view that GLP-1 expansion should not materially affect dialysis demand for at least the next decade, as mildly extended kidney disease progression to dialysis may be largely offset by cardiac and first-year survival, or "crash," benefits. Considering this roughly neutral outlook, we find the significant discounts to fair value in dialysis-related stocks compelling.

Fresenius SE’s prowess in dialysis and injectable therapies has created opportunities to vertically integrate into several medical service and technology businesses by organic and inorganic means.

Shares of dialysis-related narrow-moat companies Baxter, DaVita, Fresenius Medical Care, and Fresenius SE rose materially on news from a kidney-related trial of Novo Nordisk's obesity drug Ozempic (semaglutide). Similar to the 20% reduction in cardiac events seen in another trial for semaglutide (Novo Nordisk's Wegovy) in 2023, Ozempic was found to reduce the risk of major kidney disease-related events by 24%, including cardiac events, deaths, and kidney disease progression. Dialysis investors appear relieved that the reduction in all of those events wasn't much larger than the cardiac event benefits already seen in recent trials, suggesting that GLP-1s like semaglutide probably are not ushering in a paradigm shift in kidney disease progression. Baxter, Fresenius Medical Care, and Fresenius SE all trade at material discounts to our fair value estimates even after their shares' rise in early trading March 5.

Narrow-moat Fresenius SE turned in solid fourth-quarter results and expects profit growth to accelerate in 2024, as external pressures ease and cost reductions continue. While the firm did not report full financial statements, at first glance, we do not expect to change our EUR 50 fair value estimate. Shares remain undervalued.

In a disappointing event for dividend investors depending on that income, narrow-moat Fresenius SE decided to accept EUR 300 million in government aid to offset higher energy costs in its German hospitals that also prohibits dividend payments and variable compensation payments to managers. We are not changing our EUR 50 fair value estimate on Fresenius SE, though, as keeping those cash flows on its books should be a value-neutral event for long-term investors. Also, after this one-year suspension due to a legal technicality, we expect the company's annual dividend payments will resume in future years. Fresenius SE shares remain significantly undervalued, in our opinion.

Narrow-moat Fresenius SE turned in solid third-quarter results and raised its ongoing operating profit guidance, as cost savings efforts continued and external pressures eased. Our EUR 50 fair value estimate remains intact, and shares appear significantly undervalued.

Fresenius SE’s prowess in dialysis and injectable therapies has created opportunities to vertically integrate into several medical service and technology businesses by organic and inorganic means. Through its partial ownership of Fresenius Medical Care, the company seeks to benefit from that unique entity's position as the world's top dialysis service and product provider. In the U.S., this segment operates a convenient network of dialysis clinics at a similar scale as key peer DaVita, with the two firms cumulatively serving about three fourths of the U.S. dialysis outpatient population. Fresenius has established a number of clinics in more fragmented international markets, too, where it has a relatively long runway for growth by opening or acquiring new clinics. Fresenius leads the dialysis product market primarily by providing hemodialysis equipment and consumables to clinics globally but also sells at-home tools, too.

Shares of dialysis-related narrow-moat companies—DaVita, Fresenius Medical Care, Fresenius SE, and Baxter—all declined substantially on news that a kidney-related trial of Novo Nordisk's obesity drug Ozempic slowed the progression of kidney disease in patients with chronic kidney disease and diabetes. These results suggest the new obesity drugs may slow the incidence rate of patients needing dialysis in the long run, which we plan to account for in new fair value estimates by reducing our long-term growth assumptions in this group. With the most exposure to dialysis patient growth, we plan to reduce our fair value estimates on DaVita and Fresenius Medical Care by about 10%. Fresenius SE holds a large stake in Fresenius Medical Care, but the diversity of its operations constrained our fair value decline to the midsingle digits. Baxter's business diversity also helps blunt the impact of this news along with recently generated cash flows, and we do not plan on making any change to our Baxter fair value, although market sentiment around its 2024 kidney care spinoff valuation may be lackluster. Even with these challenges and lower fair values, we continue to view shares in these firms as significantly undervalued.

Narrow-moat Fresenius SE turned in decent second-quarter results and largely maintained its 2023 guidance, as external pressures are easing. Our EUR 52 fair value estimate has not changed materially, and shares remain significantly undervalued, in our opinion.

Fresenius SE’s prowess in dialysis and injectable therapies has created opportunities to vertically integrate into several medical service and technology businesses by organic and inorganic means. Through its partial ownership of Fresenius Medical Care, the company seeks to benefit from that unique entity's position as the world's top dialysis service and product provider. In the U.S., this segment operates a convenient network of dialysis clinics at a similar scale as key peer DaVita, with the two firms cumulatively serving about three fourths of the U.S. dialysis outpatient population. Fresenius has established a number of clinics in more fragmented international markets, too, where it has a relatively long runway for growth by opening or acquiring new clinics. Fresenius leads the dialysis product market primarily by providing hemodialysis equipment and consumables to clinics globally but also sells at-home tools, too.

Narrow-moat Fresenius SE turned in first-quarter results about as expected and maintained 2023 guidance. Our EUR 52 fair value estimate has not changed materially, and shares remain significantly undervalued, trading at just 9 times forward earnings even after the 9% increase in shares following this report.

Narrow-moat Fresenius SE's weak fourth quarter pushed results mildly below our 2022 expectations on weakness in its Kabi (injectable therapies) business, despite Fresenius Medical Care's (dialysis) stronger-than-expected results. Also, with continued challenges in dialysis and Kabi, Fresenius SE's 2023 guidance came in below our expectations. However, when considering cash flows generated in recent months, our EUR 52 fair value estimate has not changed materially, and Fresenius SE shares remain significantly undervalued. While we appreciate Fresenius SE's intention to hold onto its 32% stake in Fresenius Medical Care until that firm's intrinsic value can be unlocked, Fresenius SE shares declined after these announcements in part because shareholders may have been hoping for a quicker structural change than appears likely.

Narrow-moat Fresenius Medical Care announced that Dr. Carla Kriwet has stepped down after only a couple months at the helm as CEO due to "strategic differences" with its boards. The company's CFO (and deputy CEO and chief transformation officer), Helen Giza, will take over as head of the company. We do not anticipate changing our fair value estimates for Fresenius Medical Care or large stakeholder Fresenius SE at this juncture, but this move points to more uncertain times for shareholders, as management has yet to reveal details on how it plans to unlock the significant value we see within the Fresenius organizations.

Narrow-moat Fresenius SE trimmed its outlook for 2022 related to continued challenges at Fresenius Medical Care and new challenges in its other businesses. While we have tinkered with some of our near-term assumptions, at first glance, our EUR 52 per share fair value estimate has not changed materially after considering recently generated cash flows and the prospects for value creation as new CEOs take the helm at both Fresenius SE and Fresenius Medical Care. Also, Fresenius SE shares remain some of the cheapest in our healthcare coverage, trading at just roughly 7 times forward earnings, and we continue to see decent bottom-line growth prospects for the firm if value creation initiatives are successful and macroeconomic challenges dissipate eventually.

Narrow-moat Fresenius SE's share performance has been weak during the past few years, reflecting a variety of challenges since the pandemic hit. However, the declining share price has been related primarily to multiple compression, rather than a material change in earnings power. Investor sentiment could change if a positive catalyst emerges to get its bottom line moving again, which is possible in 2023 and beyond. With shares trading at just 8 times 2022 expected earnings and potential profit growth in the high-single digits annually during the next five years, we find Fresenius SE shares appealing.

Narrow-moat Fresenius SE announced on Aug. 19 that CEO Stephan Sturm (59) will be replaced by Michael Sen (53), who is current head of injectable therapy segment Kabi, in early October. While investors may see this changing of the guard as a positive catalyst for Fresenius SE shares, we are not changing our EUR 52 fair value estimate. We continue to view the shares as attractively valued.

Fresenius SE’s prowess in dialysis and injectable therapies has created opportunities to vertically integrate into several medical service and technology businesses by organic and inorganic means. Through its partial ownership of Fresenius Medical Care, the company seeks to benefit from that unique entity's position as the world's top dialysis service and product provider. In the U.S., this segment operates a convenient network of dialysis clinics at a similar scale as key peer DaVita, with the two firms cumulatively serving about three fourths of the U.S. dialysis outpatient population. Fresenius has established a number of clinics in more fragmented international markets, too, where it has a relatively long runway for growth by opening or acquiring new clinics. Fresenius leads the dialysis product market primarily by providing hemodialysis equipment and consumables to clinics globally but also sells at-home hemodialysis and peritoneal dialysis tools.