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Fresenius Medical to Make Huge Investments, Competition Rife

Zacks Equity Research

On Mar 25, we issued an updated research report on Fresenius Medical Care AG & Co. KGaA FMS. The company plans to invest in designing training facilities, training courses and optimizing facilities to meet the increasing demand for home dialysis products and services in developing economies.

In 2019, the company is likely to make huge investments in China, wherein it has 15 years of experience on the product side. Now, it is trying to leverage on the chronic diseases and the current development of the Chinese healthcare market. Precisely, Fresenius Medical is expected to form a network of more than 100 clinics and invest in home dialysis in China during the upcoming years.

The company’s focus is also likely to be on the Indian market, where it has just launched the 4008A machine.

For 2019, Fresenius Medical expects adjusted revenue growth of 3-7%. Adjusted net income is expected to grow between (2%) and 2%. For 2020, adjusted revenues and adjusted net income are estimated to grow at mid-to-high single digits.

Fresenius Medical is also likely to invest around EUR 100 million in 2019 to sustainably improve its cost base in addition to the GEP II program. Investors’ should notice that the 2019 cost-optimization program is expected to be accretive to net income from 2020.

These apart, Fresenius Medical recently announced the FDA device approval for its computer-assisted ultrafiltration control software, which aims to improve fluid management during hemodialysis (HD). This further fortifies the Zacks Rank #3 (Hold) company’s foothold in the global renal medical devices and services space.

Additionally, the company continues to gain from its Health Care Products unit. Notably, Fresenius Medical witnessed solid growth in the EMEA and Asia Pacific regions. Its recent buyouts of Sound Physicians and NxStage Medical are added positives.

Nonetheless, Fresenius Medical has numerous competitors in the field of health care services as well as the sale of dialysis products. Tough competition in the niche markets is likely to impede the company’s sales opportunities and lose market share. However, per management, concerns that arise due to competition represent low risk for the company in the short-term as well as in the mid-term. The company faces aggressive rivalry from HCA Holdings, DaVita HealthCare and Baxter International.

Reflective of this, shares of Fresenius Medical have declined 21.4% against the industry's 12.4% growth in a year's time. The current level also compares unfavorably with the S&P 500 index's gain of 7.6% over the same time frame.

 

Stocks to Consider

A few better-ranked stocks from the MedTech space are DexCom, Inc. DXCM, Varian Medical Systems, Inc. VAR and Masimo Corporation MASI, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

DexCom delivered a positive earnings surprise in each of the trailing four quarters, the average being 132.3%.

Varian Medical has long-term earnings growth rate of 8%.

Masimo Corporation has long-term earnings growth rate of 15.6%.

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