RBC upgrades ConvaTec after $300 mln buyback, sets 315p target

Investing.com -- ConvaTec Group Plc’s (LON:CTEC) rating has been upgraded to “outperform” from “sector perform” by RBC Capital Markets, with analysts setting a revised price target of 315p, down slightly from 320p. 

The change follows a 20% drop in the company’s shares since June, largely linked to concerns over proposed U.S. reimbursement changes. 

RBC analysts said the market reaction appears to have been “overdone,” pointing to underlying growth prospects and the company’s margin development in the medium term.

The company has guided to a possible 1-2% revenue impact in 2026 from changes to U.S. reimbursement in Skin Substitutes, with an additional 1-2% hit in 2027 from the competitive bidding process in Ostomy and Continence Care. 

RBC estimates that the worst-case scenario could mean a low double-digit percentage impact on 2027 earnings per share, but noted that ConvaTec is likely to offset a meaningful portion of this through execution and cost management.

RBC adjusted its forecasts following the company’s first-half results and incorporated the recently announced $300 million share buy-back program, which is expected to provide a low single-digit boost to EPS from 2025. 

Revenue forecasts for 2026 were increased by 1.3% due to stronger-than-expected performance in Infusion Care and favorable currency effects, though EPS was cut by 1.2% on expected margin dilution from Skin Substitute pricing changes.

For 2027, revenue growth expectations were reduced by two percentage points to reflect a cautious outlook on chronic care reimbursement, implying a 3.4% earnings impact.

The revised valuation applies a 20x P/E multiple to 2027 forecasts, down from 22x previously, to account for the added uncertainty in the U.S. reimbursement landscape. 

RBC said this still positions the stock attractively, given its current trading multiple of 16.5x 2026 estimated earnings, which is at the lower end of its five-year range and below its historical premium to peers.

ConvaTec maintains mid-term guidance of 5-7% revenue compound annual growth and margins of 24-26% by 2027, which already factors in reimbursement pressures. 

RBC said this leaves room for potential upgrades if execution remains strong and reimbursement impacts are less severe than feared.