Tuesday, Morgan Stanley downgraded Coloplast (CSE:COLOb) A/S (COLOB:DC) (OTC: CLPBY) stock, moving the rating from Equalweight to Underweight. The firm also reduced the price target to DKK813.00 from the previous DKK865.00.
The downgrade was attributed to concerns over earnings per share (EPS) downside risk and what the firm considers to be a rich valuation of the company.
The analyst pointed to several factors influencing the downgrade. Coloplast's consensus organic growth forecasts for the fiscal year 2025 are seen as having limited upside potential.
Despite new product launches such as Luja, Sensura upgrades, and Heylo, there is an expectation that these could be balanced out by persistent competition in the Women's Health business sector.
Morgan Stanley also forecasts continued pressure on profitability due to high sales and marketing (S&M) expenditures, inflation, and rising interest costs.
These factors contribute to the firm's expectation that Coloplast's fiscal year 2025 EBIT (earnings before interest and taxes) and EPS will be 4% and 7% below the consensus, respectively.
The analyst's outlook is further dampened by Coloplast's year-to-date price performance, which has seen a 13% increase, largely driven by a multiple re-rating.
With this recent performance in mind, the analyst anticipates that Coloplast shares will underperform relative to the market for the time being.
Additionally, there is anticipation of a potentially below-consensus outlook for 2025 to be revealed at Coloplast's upcoming November 5th F4Q24 result.
In other recent news, Coloplast A/S has seen significant developments in its financial outlook and stock ratings. The company's earnings and revenue growth expectations have been a focal point for analysts, with UBS projecting an 8% revenue and 11% earnings per share compound annual growth rate from 2024 to 2028.
Despite this, UBS downgraded Coloplast's stock from Neutral to Sell, citing potential challenges and a valuation at a 55% premium compared to the sector.
Simultaneously, Citi maintained its Neutral rating for Coloplast, noting a slight outperformance in the Advanced Wound Care segment and a shortfall in the Interventional Urology division.
The firm also highlighted a discrepancy between reported sales and adjusted earnings before interest and taxes (EBIT), attributing it to lower-than-expected gross margins and higher operational expenses.
On the other hand, Barclays upgraded Coloplast's stock from Equalweight to Overweight, expressing optimism about the company's growth prospects and financial performance. They anticipate a growth acceleration to around 9% and improvements in margins and returns.
The firm also sees potential for considerable upside in the US continence market, suggesting that reimbursement changes could lead to a 30% increase in the value of Coloplast's US continence franchise.
These recent developments underscore the varying analyst perspectives on Coloplast's financial future and market performance.
InvestingPro Insights
Recent data from InvestingPro offers additional context to Morgan Stanley's downgrade of Coloplast A/S. Despite the analyst's concerns, Coloplast has demonstrated solid financial performance, with revenue growth of 8.1% over the last twelve months and a robust gross profit margin of 67.52%. The company's operating income margin stands at a healthy 27.38%, indicating efficient operations.
However, aligning with Morgan Stanley's valuation concerns, InvestingPro data shows Coloplast trading at a high P/E ratio of 38.58 and a price-to-book ratio of 11.87, suggesting a premium valuation. This supports the analyst's view of a "rich valuation" and potential for underperformance.
InvestingPro Tips highlight Coloplast's strong dividend history, having raised its dividend for 15 consecutive years and maintained payments for 32 years. This track record may provide some reassurance to income-focused investors despite the downgrade. However, it's worth noting that 2 analysts have revised their earnings downwards for the upcoming period, which aligns with Morgan Stanley's cautious outlook.
For investors seeking a more comprehensive analysis, InvestingPro offers 11 additional tips for Coloplast, providing a deeper understanding of the company's financial health and market position.
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