UBS issued a downgrade for Coloplast (CSE:COLOb) A/S, listed on the Copenhagen stock exchange as COLOB:DC and over-the-counter as OTC:CLPBY, altering its stock rating from Neutral to Sell. The firm also adjusted the company's price target to DKK855.00 from the previous DKK884.00.
The downgrade reflects UBS's view that Coloplast, despite being a high-quality business expected to achieve an 8% revenue compound annual growth rate (CAGR) from 2024 to 2028 and an 11% earnings per share (EPS) CAGR during the same period, may face challenges ahead.
The firm's forecast for the company's adjusted earnings before interest and taxes (EBIT) from 2025 onwards is 3-5% below the consensus. UBS also anticipates potential additional downside risks to EBIT that could cumulatively reach 7% by 2025, which are not currently accounted for in consensus forecasts or the share price.
UBS further noted that the potential upside from changes in U.S. catheter reimbursement is likely limited to approximately 1.5% of Coloplast's group revenues. This benefit is expected to be distributed over several years and is believed to be already factored into consensus estimates.
The decision to downgrade Coloplast's stock also takes into account the company's price-to-earnings (PE) ratio, which is currently at a 55% premium compared to the sector, against a 40% five-year average.
This valuation, combined with the outlined risks and limited upside potential, has led UBS to adopt a more cautious stance on the stock, resulting in the lowered rating to Sell.
InvestingPro Insights
In light of UBS's downgrade of Coloplast A/S, current data from InvestingPro provides additional context that investors might find valuable. Coloplast's market capitalization stands at $30.61 billion, reflecting its substantial presence in the healthcare equipment and supplies sector. Despite the downgrade, Coloplast has shown resilience with a revenue growth of 8.1% over the last twelve months as of Q3 2024, and a robust gross profit margin of 67.52% in the same period. This indicates the company's ability to maintain profitability despite challenges.
InvestingPro Tips highlight that Coloplast has raised its dividend for 15 consecutive years and has maintained dividend payments for 32 consecutive years, showcasing a commitment to shareholder returns. However, analysts have revised their earnings downwards for the upcoming period, which could be a point of concern for potential investors. It's also worth noting that the stock is trading at a high earnings multiple, with a P/E ratio of 41.5, which aligns with UBS's commentary on the stock's premium valuation.
For those interested in a deeper analysis, InvestingPro offers additional tips on Coloplast, which can be accessed on their platform. These insights could further guide investors in making informed decisions regarding Coloplast's stock.
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