Analyst Note| Debbie S. Wang |
ConvaTec posted abbreviated revenue results for the first four months of 2022 that put the firm on track to meet our full-year expectations, and we’re leaving our valuation for U.S. shares unchanged, but slightly raising our fair value estimate for local U.K. shares to reflect underlying changes in foreign exchange. Organic 6% consolidated revenue growth was driven by advanced wound care, continence care, and infusions sets. Not surprisingly, ostomy growth remains mired in the low single digits, and will likely remain in that range considering the flow of new patient discharges ultimately determines the pace of adoption. We remain confident in the structural integrity of ConvaTec’s narrow economic moat, which stems from intangible assets as well as switching costs for patients. Though the pandemic exerted pressure on ConvaTec’s non-pandemic related business—including advanced wound care, ostomy, and continence care—the firm is already showing signs of resumption in growth as non-COVID surgical procedures have begun to return following the omicron surge.