Morningstar

Fresenius SE Earnings: Easing External Pressures Help Maintain 2023 Outlook

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Securities In This Article
Fresenius SE & Co KGaA
(FRE)

Narrow-moat Fresenius SE FRE turned in first-quarter results about as expected and maintained 2023 guidance. Our EUR 52 fair value estimate has not changed materially, and shares remain significantly undervalued, trading at just 9 times forward earnings even after the 9% increase in shares following this report.

In the quarter, external pressures eased for some of Fresenius SE’s businesses. For example, in the U.S. dialysis market, COVID-19 mortality challenges dissipated somewhat on the retreating pandemic, and labor challenges eased. Overall, first-quarter revenue grew 5%, while adjusted operating profits declined 10% in constant currency. Management also maintained guidance for 2023, calling for low- to mid-single-digit revenue growth and up to a high-single-digit decline to flat profits, which remain in line with our expectations.

At Fresenius Medical Care in the quarter, revenue grew 2% while adjusted operating profit declined 13% in constant currency, and management maintained its guidance for the full year. In the longer run, a full turnaround in shares will likely require margin improvement in the dialysis business, and the team is aiming to boost adjusted operating margins to between 10% and 14% by 2025, up from about 8% in the first quarter. That increase appears possible to us, especially considering the significant room for improvement in its medtech margins.

Beyond dialysis, the Kabi injectable therapy and Helios hospital businesses roughly met expectations in the quarter. Kabi’s revenue grew 8% in constant currency, with its growth vectors (MedTech, Nutrition, and Biopharma) increasing 12% while its other businesses (IV drugs and fluids) increased 4%. However, ongoing investments in the growth vectors and inflationary cost pressures caused Kabi’s adjusted operating profits to decline 4% year over year. Helios was sturdy with 5% revenue growth (3% in Germany, 9% in Spain, 18% in fertility) and adjusted operating profit growth of 2% in constant currency.

The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.

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About the Author

Julie Utterback, CFA

Senior Equity Analyst
More from Author

Julie Utterback, CFA, is a senior equity analyst, AM Healthcare, for Morningstar*. She focuses on medical technology and service companies. She covers managed care organizations including UnitedHealth, service providers like HCA, medical suppliers such as Baxter, and life sciences companies like Danaher. She is also the chairperson of the equity research team’s capital allocation methodology.

Before joining Morningstar in 2005, Utterback was an equity analyst at State Farm Insurance for several years. Utterback joined Morningstar in 2005 as an equity analyst in the healthcare industry, and initially she primarily covered medical technology companies, including orthopedic device, medical equipment, and cardiac device firms. In 2010, she joined Morningstar's credit research team, initiating coverage of the entire healthcare industry and generally helping the organization expand and maintain its credit coverage across many industries. She held that senior credit analyst role until April 2019, when she returned to the equity team to cover medical technology and service companies.

Utterback holds a bachelor's degree in finance from the University of Illinois Urbana-Champaign’s Gies College of Business. She also holds the Chartered Financial Analyst® designation.

* Morningstar Research Services LLC (“Morningstar”) is a wholly owned subsidiary of Morningstar, Inc

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