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On Thursday, JPMorgan analyst Anchal Verma adjusted the price target on Carl Zeiss Meditec AG (AFX:GR) (OTC: CZMWY) to €41.00, up from the previous €40.00, while maintaining an Underweight rating on the stock. The adjustment follows a decline in the company’s shares by 12.5%, attributed to several factors including the company’s guidance indicating a recovery weighted towards the fourth quarter (Q4), cautious market remarks from a peer, and the stock’s prior strong performance without fundamental changes.
Verma expressed confusion over the stock’s year-to-date (YTD) increase of 29% before Q1 results, noting that the fundamentals had not significantly altered and the price-to-earnings ratio (PER) for fiscal year 2025 estimates remained high at 31 times, despite anticipated high single-digit declines in earnings per share (EPS). Carl Zeiss Meditec’s management has chosen not to provide a quantifiable fiscal year outlook due to low visibility and multiple variables affecting the business, including the ramp-up of a new product launch, the recovery of the refractive market in China, and the impact of the Volume-Based Procurement (VBP) program.
The second quarter (Q2) is expected to show some improvement, but the recovery is projected to be concentrated in Q4, spanning June to September. A significant factor in the company’s growth is the launch of the Visumax 800 in China. However, JPMorgan is skeptical about the demand for this higher-priced premium product, given the subdued demand in the refractive market, trends towards lower-cost options, and pricing pressures.
Analysts at JPMorgan anticipate that consensus margin estimates for Q2 might be overly optimistic, expecting a sequential increase of approximately five percentage points. They predict these estimates are likely to be revised downwards following the company’s commentary. With the forecast for another year with recovery skewed towards the latter half, coupled with macroeconomic volatility and a PER of 28 times for fiscal year 2025, JPMorgan sees the risks tilting to the downside for Carl Zeiss Meditec stock.
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