On Tuesday, Jefferies upgraded Draegerwerk AG & Co KGaA (DRW8:GR) stock from Underperform to Hold and raised the price target to €47.00 from €42.00 for the shares. The firm cited significant improvement in EBIT margins and Draegerwerk's new focus on profitability as key reasons for the upgrade.
The company's strategy includes a yearly average increase of 1 percentage point in EBIT margin starting in 2024, with strict cost management and enforcement of pricing policies, particularly in the Medtec sector.
The analyst noted Draegerwerk's strategy to enhance profitability through modifications or cessation of unprofitable operations. Additionally, early signs of recovery in China, which has been a challenging market for Draegerwerk in the past, were mentioned as a positive development.
The company is also awaiting a reinspection, which could potentially lift an FDA warning letter that has been a concern, with the analyst indicating favorable chances for resolution within the next 12 months.
Despite a downward revision in sales growth expectations for 2024 to 1% from the previous range of 1-5%, Jefferies has increased its EBIT margin forecast for 2024 and beyond from 4.3% to 4.8%.
This adjustment reflects a strong performance in the first half of the year, including a one-off positive impact of €20 million from the sale of the fire alarm systems business in the Netherlands.
Jefferies has also raised the sustainable EBIT margin forecast from 5.0% to 5.3%, reflecting confidence in Draegerwerk's new profitability-first approach. The company's commitment to improving margins and profitability, alongside operational adjustments, has led to the upgraded rating and increased price target.
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