Investing.com -- Goldman Sachs (ETR: AFXG) (OTC: CZMWY) has downgraded Carl Zeiss Meditec to a Sell rating from its previous Neutral rating, with a revised price target of €23.00 down from €27.00 previously. The analysts say the new target price reflects around 26% downside, while Goldman Sachs' average upside estimate for the overall European Medtech coverage is 22%.
Zeiss is trading above its 10-year relative valuation range, and well above the organic growth and P/E multiple relationships in the sector. According to firm analysts, the company's current valuation doesn't reflect the fundamental outlook, and they see the risk/reward for Zeiss skewed towards the downside.
Discussing the rationale for the downgrade, Goldman Sachs observes that it is partly driven by Zeiss Group's June announcement to invest up to €200m, increasing its stake in Carl Zeiss Meditec.
"As buying support fades (that has supported the multiple beyond levels justified by an increasingly challenged outlook) we expect the gap between valuation and underlying fundamentals to close," the analysts said.
While Zeiss shares are already underperforming -21% YTD, Goldman Sachs says earnings likely haven't reached their trough and the deteriorating top-line outlook has not yet been assimilated into valuations.
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The firm observes that Zeiss' top line and earnings are impacted by IOL VBP 2.0 and slower capital equipment placements amid centralised procurement. This is also expected to weigh on procedure volumes and utilisation.
Accordingly, the analysts have cut adjusted EBITDA estimates to +2%, -11%, -6% for FY26, FY27, and FY28 respectively.
Goldman Sachs also adds that Zeiss faces increasing local competition, which adds to uncertainty. Firm analysts are expecting organic sales growth to improve to 1.2% in FY27 compared to an estimated -1.0% in FY26. However, they believe FY26 results—which will be released on 10 Dec—will probably turn out to be a catalyst for consensus estimates to rebase lower.
The firm's estimate of ~8% sits below the adjusted EBITA consensus in FY27, but the analysts caveat this observation with the point that consensus dispersion is unusually wide.
Goldman Sachs notes that while Zeiss' Profit Up restructuring program signals a genuine structural shift toward more proactive cost management, its prospective benefits will both depend on successful execution and take a while to materialise.
The firm believes consensus' incorporating cost savings from the program is premature and also fails to adequately reflect the weaker revenue trajectory facing Zeiss going forward.
The target multiple for Zeiss has been lowered to 13x from 14x previously to reflect cuts to Goldman Sachs' organic growth forecasts. The firm is now forecasting a 3.2% organic topline CAGR figure for FY27-29 compared to 4.5% previously.
Original Article
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