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Dialysis Long-Term Growth May Be Hit by Obesity Drug Trial Success, but Shares Still Undervalued

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Shares of dialysis-related narrow-moat companies—DaVita, Fresenius Medical Care, Fresenius SE FME, and Baxter—all declined substantially on news that a kidney-related trial of Novo Nordisk’s obesity drug Ozempic slowed the progression of kidney disease in patients with chronic kidney disease and diabetes. These results suggest the new obesity drugs may slow the incidence rate of patients needing dialysis in the long run, which we plan to account for in new fair value estimates by reducing our long-term growth assumptions in this group. With the most exposure to dialysis patient growth, we plan to reduce our fair value estimates on DaVita and Fresenius Medical Care by about 10%. Fresenius SE holds a large stake in Fresenius Medical Care, but the diversity of its operations constrained our fair value decline to the midsingle digits. Baxter’s business diversity also helps blunt the impact of this news along with recently generated cash flows, and we do not plan on making any change to our Baxter fair value, although market sentiment around its 2024 kidney care spinoff valuation may be lackluster. Even with these challenges and lower fair values, we continue to view shares in these firms as significantly undervalued.

The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.

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Julie Utterback

Senior Equity Analyst
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Julie Utterback is a senior equity analyst for Morningstar Research Services LLC, a wholly owned subsidiary of Morningstar, Inc. Within the healthcare industry, she covers medical technology and service companies. She is also the chairperson of the equity research team’s capital allocation methodology.

Utterback joined Morningstar in 2005 as an equity analyst in the healthcare industry. At that time, she covered medical technology companies, including orthopedic device, medical equipment, and cardiac device firms. In 2010, she joined Morningstar's credit research team, initiating coverage of the entire healthcare industry and generally helping the organization expand and maintain its credit coverage across many industries. She held that senior credit analyst role until April 2019, when she returned to the equity team to cover medical technology and service companies.

Prior to joining Morningstar, Utterback was an equity analyst at State Farm Insurance for several years. She holds a bachelor's degree in finance from the University of Illinois Urbana-Champaign. She also holds the Chartered Financial Analyst® designation.

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