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On Friday, Stifel analysts highlighted a selection of Med-Tech stocks that present favorable risk/reward opportunities, despite the industry’s current challenges with back-end weighted guidance for fiscal year 2025. The analysts have identified a pattern within their coverage universe, particularly among the ten largest cap stocks, where seven are categorized as having guidance weighted towards the end of the fiscal year. This back-end weighting is a concern for investors, especially given the weakening consumer metrics and the large consumer component inherent in many of these stocks.
The Stifel note acknowledges that the market may have already accounted for some of these challenges, as five out of the ten stocks are trading at what is perceived as trough relative valuation. However, the analysts argue that this valuation may be irrelevant if earnings estimates continue to decline. To address these concerns, Stifel has outlined a few stocks they believe are capable of meeting their fiscal year 2025 guidance and have explained their reasoning.
The analysts at Stifel express the most confidence in Cooper Companies and Envista, citing the companies’ ability to meet the demanding cadence of their guidance, which is largely within their control. Cooper Companies, in particular, is noted for its trough relative valuation. For investors with a higher risk tolerance, Stifel points to Align Technology (NASDAQ:ALGN), bolstered by robust Google (NASDAQ:GOOGL) trends and the stock trading around what is implied by Patterson’s takeout multiple. According to InvestingPro data, Align Technology currently trades near its 52-week low, with the stock down nearly 50% over the past year. Despite these challenges, the company maintains strong fundamentals with a 70% gross profit margin and a healthy financial profile, earning a "GOOD" overall score from InvestingPro’s comprehensive analysis. Elanco is also mentioned, albeit with more caution.
Stifel suggests an allocation among these four stocks leading up to the year-end, recommending a portfolio weighting of 40% in Cooper Companies, 30% in Envista, 20% in Align Technology, and 10% in Elanco. This strategy is proposed as a way to capitalize on the potential of these selected companies to achieve their fiscal year 2025 targets despite the current headwinds faced by the Med-Tech sector. For investors interested in deeper analysis, InvestingPro offers comprehensive research reports on these companies, including detailed financial health metrics, Fair Value calculations, and expert insights. InvestingPro’s analysis indicates that Align Technology appears undervalued at current levels, with analysts maintaining a consensus buy recommendation and projecting EPS of $10.09 for FY2025.
In other recent news, Align Technology reported fourth-quarter earnings that slightly missed analyst expectations, with adjusted earnings per share of $2.44 compared to the $2.46 consensus. The company’s revenue for the quarter was $995.2 million, falling short of the anticipated $1 billion. Align Technology also provided first-quarter guidance with revenue projections between $965 million to $985 million, below Wall Street’s estimate of $1.03 billion. Despite these challenges, the company completed a $1 billion stock repurchase program, demonstrating its strong financial position. Align Technology announced plans to purchase an additional $225 million of its common stock in the open market. Furthermore, Wells Fargo (NYSE:WFC) initiated coverage on the company with an Overweight rating, citing its strong market position and brand recognition. Piper Sandler maintained an Overweight rating but adjusted its price target to $270, reflecting on Align’s realistic outlook amidst a challenging economic environment. Additionally, Align Technology launched its AI-powered Align X-ray Insights in Europe, aiming to enhance diagnostic accuracy and patient care.
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