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Grifols Shares Undervalued Following Q4 Results; Pandemic Collection Headwind Should Subside in 2021

Karen Andersen, CFA Sector Strategist

Analyst Note

| Karen Andersen, CFA |

We're slightly adjusting our fair value estimates for Grifols' B shares from EUR 19.20/$22.50 to EUR 19/$23 following the firm's 2020 financial results. Shares continue to trade at a steep discount to our valuation, as we think the market is focused on near-term COVID-19-related headwinds as Grifols struggles to collect enough plasma to manufacture its products during the pandemic. While the first quarter will likely continue to see similar headwinds as the fourth quarter of 2020, we assume collections could improve significantly in the second quarter of 2021, based on vaccination and infection rates in the U.S., a key collection market for Grifols. Grifols should benefit from organic growth in collection centers, as 15-20 new centers are scheduled to open in 2021. In addition, Grifols has made several deals that will help the firm reinvigorate growth once the worst of the pandemic subsides, including the March 2020 alliance with Shanghai RAAS to increase the plasma-derived protein market in China, the October 2020 acquisition of manufacturing plants in Canada and U.S.-based plasma collection centers, and a November 2020 deal with the Egyptian government meant to boost Middle East and Africa supply of plasma-derived proteins. We expect these investments to support strong supply of plasma and finished plasma products that will continue to support the firm's narrow moat in the plasma protein oligopoly, alongside global players CSL and Takeda.

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Company Profile

Business Description

As a vertically integrated plasma derivative producer, Spain-based Grifols collects plasma and then manufactures and sells plasma-derived products globally. By acquiring Talecris in 2011, Grifols dramatically expanded its plasma-derived product portfolio, and the firm's bioscience business contributed 78% of sales in 2019. Grifols also has smaller segments including diagnostics, hospital supplies, and biosupplies. Diagnostics is now roughly 14% of revenue following the Novartis and Hologic deals.

Avinguda de la Generalitat, 152-158, Parque empresarial Can Sant Joan
Barcelona, 08174, Spain
T +34 935710500
Sector Healthcare
Industry Drug Manufacturers - General
Most Recent Earnings Sep 30, 2020
Fiscal Year End Dec 31, 2020
Stock Type
Employees 23,655