Higher Expenses Weigh on Carl Zeiss in Q1, but Growth Exceeds Forecasts; Shares Still Overvalued

Narrow-moat Carl Zeiss Meditec had a decent start to the fiscal year with robust 10.5% currency-adjusted sales growth, though operating margin faced headwinds from supply chain constraints and planned higher research and marketing costs. We intend to raise our fair value estimate by a mid-single-digit percentage after incorporating a long-term U.S. corporate tax rate of 21% and higher medium-term top-line growth. Despite a 30% decline in recent months, shares remain overvalued in our view and trade about 2 times above our fair value estimate.