Fresenius Medical Care AG & Co. KGaA FMS is well poised for growth on the back of a broad range of dialysis products and services, and its growth strategy for 2020. However, stiff competition remains a concern.
The stock has gained 31.9%, compared with the industry’s growth of 20.9% in a year’s time. Further, the S&P 500 Index rallied 14.1% in the same time frame.
The company — with a market capitalization of $25.94 billion — is one of the largest integrated providers of products and services for individuals undergoing dialysis following chronic kidney failure. It anticipates earnings to improve 7.7% over the next five years.
Let’s take a closer look at the factors that substantiate the company’s Zacks Rank #3 (Hold).
What’s Hurting the Stock?
Fresenius Medical has numerous competitors in the field of health care services and sale of dialysis products. Intense competition in the niche markets is likely to hamper the company’s sales opportunities, which in turn can lead to loss of market share.
However, per management, concerns arising from competition pose low risk to the company in the short and mid-term. The company faces aggressive rivalry from HCA Holdings, DaVita HealthCare and Baxter International.
Fresenius Medical provides access to a wide range of Dialysis products in its own dialysis clinics and third-party clinics. These include modular machine components, dialyzers, bloodline systems, HD (hemodialysis) solutions, concentrates and water treatment systems.
At year-end 2019, home dialysis accounted for 13% of all treatments in the United States. By 2022, the company aims to perform more than 15% of all dialysis treatment in the United States in a home setting and is on track to achieve this target.
In the United States, the company is collaborating with other dialysis providers to create isolation clinics and dedicated shifts for COVID-19 positive patients. The primary aim of this collaboration is to keep dialysis patients out of the hospital whenever it is possible.
During second-quarter 2020, Fresenius Medical was able to sustain operations in more than 4,000 of its dialysis clinics worldwide without substantial interruption, while minimizing the impact of the pandemic on its staff and patients. Use of telehealth solutions was the primary reason behind this uninterrupted operational performance.
Notably, the company has set up a strong long-term objective called the ‘Growth Strategy 2020’ to plan new initiatives for gaining solid market traction.
Per the postulates of the ‘Growth Strategy 2020’, Fresenius Medical aims to boost revenues to $28 billion by 2020, corresponding to an average annual growth rate of around 10%. In this regard, revenues increased 7% on a year-over-year basis and reached $17.9 billion in recent past, driven by strong performance in Health Care Services. Furthermore, management forecast an increase in revenues in tune with organic growth and acquisitions. At the same time, the company anticipates high single-digit annual growth in net income by 2020.
Which Way are Estimates Headed?
For 2020, the Zacks Consensus Estimate for revenues is pegged at $21.46 billion, indicating an improvement of 9.7% from the prior-year quarter. The same for adjusted earnings per share stands at $2.61, suggesting growth of 3.2% from the year-ago reported figure.
Stocks to Consider
Some better-ranked stocks from the broader medical space include Biolase, Inc. BIOL, Boston Scientific Corporation BSX and Thermo Fisher Scientific Inc. TMO. While both Biolase and Boston Scientific carry a Zacks Rank #2 (Buy), Thermo Fisher sports a Zacks Rank of 1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Biolase has a projected long-term earnings growth rate of 15%.
Boston Scientific has an estimated long-term earnings growth rate of 10%.
Thermo Fisher has a projected long-term earnings growth rate of 15.5%.
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