Grifols Earnings: Shares Remain Undervalued as Outlook for the Remainder of 2024 Improves

Grifols reported 4.1% revenue growth (5.5% at constant currencies) in the first quarter of 2024, as solid 9.4% constant currency growth in the biopharma division was countered by declines in diagnostics and biosupplies. The firm’s adjusted EBITDA margin of 21.6% came in well below the firm’s full-year guidance of 25%-26%, and Grifols’ free cash flow shrank further into the red, from negative EUR 144 million to negative EUR 253 million, mainly due to changes in working capital. We see some encouraging signs that the firm will be able to meet its 2024 guidance and return to positive free cash flows beginning in the second quarter. We’re maintaining our EUR 10.90 ($11.80) fair value estimate, which incorporates revenue growth (6% as reported) and adjusted EBITDA (24.1%) near the low end of management’s 2024 guidance as well as low- to mid-single-digit revenue growth beyond 2024 as competition in the alpha-1 market and autoimmune-related immunoglobulin indications ramp up. Even with these relatively conservative expectations, shares are trading roughly 40% below our fair value estimate, as we think the market is overly concerned about Grifols’ ability to improve its financial health.