Carl Zeiss Earnings: China and Product Cycle Are Near-Term Headwinds, but Our Outlook Is Positive

Narrow-moat Carl Zeiss' fiscal first-quarter results largely met our expectations. Total sales of EUR 490 million were up 3.3% year over year but down 7.3% excluding a EUR 50 million contribution from the Dutch Ophthalmic Research Center acquisition. The Americas performed well, delivering 19.3% growth and slightly positive growth even after excluding DORC impacts. Europe, the Middle East, and Africa was up 11.2% but slightly down without DORC, and Asia-Pacific was down 11.5%. The shares were down about 12% in Feb. 12 trading, but we maintain our EUR 73 fair value estimate. We believe the market reaction offers significant upside to investors willing to weather near-term volatility and market weakness that we think is temporary.