Gold prices bounce off 3-week lows; demand likely longer term
On Wednesday, Goldman Sachs analyst Richard Felton upgraded Carl Zeiss Meditec AG (AFX:GR) (OTC: CZMWY), a medical technology company with a $5.2 billion market cap, from Sell to Neutral and increased the price target to EUR60.00 from EUR50.00. According to InvestingPro data, the stock has shown significant momentum with a 16% return over the past week. The revision follows a reevaluation of the company’s China Refractive business, which had previously been a significant contributor to earnings growth and a central part of the investment thesis but has since experienced a slowdown due to a weaker macroeconomic environment. Despite these challenges, the company maintains strong fundamentals with a healthy 52.7% gross profit margin and operates with a moderate debt level.
The analyst noted that the China Refractive segment’s deceleration had a disproportionate effect on EBIT margins in FY24, considering the segment’s high gross margin profile. Furthermore, Carl Zeiss also encountered challenges in its Microsurgery business, particularly in the second half of the year. These factors, coupled with limited visibility on recovery, led to a downward revision of consensus estimates for FY25/26e by approximately 40% and 36% respectively over the past year.
Despite these setbacks, Goldman Sachs now believes that the market’s expectations for Carl Zeiss Meditec may have bottomed out. While acknowledging the ongoing low visibility and not anticipating a return to the previous growth levels seen from FY16-23 when SMILE was increasing its market share, the firm suggests that current consensus may be overly pessimistic, assuming a continued sharp decline in China.
Felton’s outlook is somewhat buoyed by the recent approval of Visumax 800 in China, which occurred earlier than anticipated. This development could potentially mitigate further downside risks to the company’s financial estimates. The upgrade reflects a shift in Goldman Sachs’ view on the stock, indicating that the potential for negative surprises in earnings projections may have been exhausted. InvestingPro analysis reveals the company has maintained dividend payments for 19 consecutive years and currently shows a Good financial health score, with additional insights available to subscribers.
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