Coloplast Earnings: Strong Demand Drives Revenue, Though Foreign Exchange and Inflation Remain Tough

Though foreign-exchange headwinds have nagged at Coloplast, underlying demand remains robust and revenue growth remains on track to meet our full-year projections. We’re holding steady on our assumptions and leaving our fair value estimate for the Danish shares unchanged. However, we're raising our ADR fair value estimate to $14.10 from $13.30 to reflect current foreign-exchange rates. Importantly, we have upgraded our economic moat rating to wide from narrow on the strength of Coloplast's returns and consistent ability to deliver innovation that drives returns on invested capital far above its cost of capital. Having studied Coloplast for over a decade now, we think it can maintain its intangible assets and switching costs to generate economic profits over the 20-year period that characterizes a wide economic moat. For this firm, it comes down to a particular focus on end users and ability to introduce meaningful design improvements, even after patents expire.