Morningstar

Fresenius Medical Care Exceeds Expectations in Q4 but Guides to Continued Challenges in 2023

We believe shares are still undervalued.

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Securities In This Article
Fresenius Medical Care AG
(FME)

Fresenius Medical Care FME, the narrow-moat global dialysis leader, turned in fourth-quarter results that helped it exceed our 2022 expectations moderately. However, with continued challenges, its 2023 outlook was lower than we anticipated. Shares appeared to rise, though, on the increased visibility toward intermediate-term improvement and Fresenius SE’s decision to maintain its 32% stake in the company until full intrinsic value can be unlocked, which may add near-term stability to shares. We are keeping our fair value estimate intact, and shares remain undervalued, in our opinion.

In the fourth quarter, the dialysis business turned in better-than-anticipated results, albeit on low expectations. Specifically, revenue grew 2% in constant currency while adjusted EPS declined only 4% year over year. These fourth-quarter results helped the firm moderately exceed our expectations on the bottom line in 2022. Considering its solid 2022 cash flow, too, that recent performance fully offset its weaker-than-anticipated 2023 guidance in our model.

Going forward, management anticipates low- to mid-single-digit revenue growth in 2023, and without the government-related support that helped buoy results in 2022, the company is aiming for only flat to a high-single digit decline in profits for the full year. Positively, the coronavirus-related mortality concerns that have hampered results so much in recent years appear to be easing, but ongoing labor concerns look likely to continue cutting into operating margins in 2023, similar to the other caregivers that we cover. With ongoing transformational activities though, management aims to boost operating margins to between 10% and 14% by 2025. Our fair value estimate only depends on the company reaching the bottom end of that target range by 2025 and the middle of the range by 2027, so there could be upside to our fair value estimate if the company Looks likely to hit the top end of its target range within the next five years.

The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.

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About the Author

Julie Utterback, CFA

Senior Equity Analyst
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Julie Utterback, CFA, is a senior equity analyst, AM Healthcare, for Morningstar*. She focuses on medical technology and service companies. She covers managed care organizations including UnitedHealth, service providers like HCA, medical suppliers such as Baxter, and life sciences companies like Danaher. She is also the chairperson of the equity research team’s capital allocation methodology.

Before joining Morningstar in 2005, Utterback was an equity analyst at State Farm Insurance for several years. Utterback joined Morningstar in 2005 as an equity analyst in the healthcare industry, and initially she primarily covered medical technology companies, including orthopedic device, medical equipment, and cardiac device firms. In 2010, she joined Morningstar's credit research team, initiating coverage of the entire healthcare industry and generally helping the organization expand and maintain its credit coverage across many industries. She held that senior credit analyst role until April 2019, when she returned to the equity team to cover medical technology and service companies.

Utterback holds a bachelor's degree in finance from the University of Illinois Urbana-Champaign’s Gies College of Business. She also holds the Chartered Financial Analyst® designation.

* Morningstar Research Services LLC (“Morningstar”) is a wholly owned subsidiary of Morningstar, Inc

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