Convatec: Steady Improvements in Innovation and Execution Should Add Up to Improved Returns

Convatec continues moving forward with efforts to reshape its product portfolio, leaning toward more chronic care and innovative technologies and away from the acute-care setting. Considering that these shifts will take time to show up in financial results, our modeling assumptions are unchanged and we’re holding steady on our fair value estimate, which remains moderately above recent share prices. We remain confident that strategic decisions under CEO Karim Bitar should reinforce the company's narrow economic moat and potentially nibble away at the growth and profitability gap with rival Coloplast, as Convatec gets closer to commercializing some of its differentiated pipeline products. We’re watching the recent U.S. launch of ConvaFoam carefully, as this provides Convatec with entrée to the largest subsegment in advanced woundcare and fills a key gap in its portfolio. Importantly, increased medical utilization should provide a healthy tailwind through 2023, especially for woundcare and ostomy.