Fresenius Medical Care AG (NYSE:FMS): On a Healing Path

We came across a bullish thesis on Fresenius Medical Care AG (NYSE:FMS) on ValueInvestorsClub by mimval. In this article, we will summarize the bulls’ thesis on FMS. The company’s shares were trading at $23.09 when this thesis was published, vs. the closing price of $23.98 on Mar 07.

Patients connected to dialysis machines in a hospital ward, highlighting the company’s dialysis and intravenous therapies.

FMS provides dialysis and related services for individuals with renal diseases in Germany, the United States, and internationally. It has captured 40% of the market share with 80% of revenue coming from the Care Delivery segment and the remaining 20% from its med-tech manufacturing business called Care Enablement.

The market potential for FMS is substantial and always increasing. It is estimated that 36 million Americans have chronic kidney disease and almost 135,000 new patients are added each year. 808,000 of those diagnosed are in the end-stage with 68% of them requiring dialysis. Many claim that the new anti-obesity drugs may reduce the need for dialysis, putting FMS ’stock price under pressure. However, the efficacy of these medications on kidney health is still speculative in nature.

The recent spin-off from parent Fresenius SE has also worked in favor of the company. While the parent still owns a 32% stake, FMS should offer a leaner structure that would look to divest low-margin business and improve capital allocation. The management had announced a cost reduction of $650 million by 2025 and they have already managed to reduce expenses by $519 million till Q3-24. The possibility of selling the med-tech business to a strategic buyer cannot be discounted and this would free up capital for further business expansion. The CEO Helen Giza has also hinted at a share buyback program at the recently concluded J.P. Morgan Healthcare Conference.

FMS is available at a discount when compared with its peer DaVita. DaVita trades at 10x its trailing 12-month EBITDA and 10x its FCF. FMS is available at 7x EBITDA and 8x FCF. Due to better capital allocation, favorable business mix and improved margins FMS should command EBITDA and FCF multiples of 9x and 12x. This translates into an intrinsic value of $35, providing a potential 45% upside.

While we acknowledge the potential of FMS as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than FMS but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

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Disclosure: None. This article was originally published at Insider Monkey.