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Fresenius SE Earnings: Turnaround Continues, Improving 2023 Outlook

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Narrow-moat Fresenius SE FRE turned in solid third-quarter results and raised its ongoing operating profit guidance, as cost savings efforts continued and external pressures eased. Our EUR 50 fair value estimate remains intact, and shares appear significantly undervalued.

In the quarter, Fresenius’ external pressures eased while the company benefited from cost savings programs. For example, in the Fresenius Medical Care stake, COVID-19 mortality challenges appear to wane after the pandemic, and labor challenges declined. Including cost-control efforts, Fresenius Medical Care also increased its 2023 operating profit growth target to the low single digits, up from a flat to mid-single-digit decline expected previously.

Beyond dialysis, the Kabi injectable therapy and Helios hospital businesses performed well, while Vamed’s hospital-related businesses started to turnaround a bit. Kabi’s revenue and net income grew 7% in constant currency with its growth vectors (medtech, nutrition, and biopharma) increasing 12% on biosimilar launches, while its other businesses (IV drugs and fluids) benefited from higher medical utilization. Helios turned in decent results with 5% revenue growth in constant currency (4% in Germany, 5% in Spain, 11% in fertility) and adjusted operating profit growth of 8% in constant currency. Vamed even started to turn around a bit in the quarter, and management still appears to be exploring divestiture options for this business.

Looking forward, Fresenius SE remains in turnaround mode, and the decent results in recent quarters allowed management to slightly boost its 2023 outlook. Specifically, management anticipates flat adjusted operating profit in 2023 versus prior guidance for flat to down in the midsingle digits. With the potential for margin expansion going forward, we suspect the company can even grow its bottom line next year, although management deferred giving guidance until next quarter.

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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