On Wednesday, UBS began coverage of Demant A/S (DEMANT:DC) (OTC: WILYY), a leading hearing healthcare company, with a Buy rating and a price target of DKK320.00.
The coverage initiation follows a period of notable decline in Demant's share value, which has dropped by 25% over the last six months. This drop has resulted in the company's shares trading at a significant discount compared to its close peer Sonova and the broader MedTech sector.
The UBS analyst highlighted that Demant's shares are currently trading at their largest discount to Sonova in 15 years and are twice as discounted compared to the average of the MedTech sector. This valuation gap has been attributed to a recent cut in the company's financial guidance and growing concerns over market demand.
Despite the recent downturn, UBS's analysis suggests that the consensus estimates for Demant's adjusted EBIT for the years 2024-2028 are at or near the lowest point. The firm foresees a 13% compound annual growth rate (CAGR) in earnings per share (EPS) for Demant from 2024 to 2028, which is expected to outpace both Sonova and the MedTech sector at large.
UBS anticipates that Demant's projected growth will contribute to a positive reevaluation of the company's stock. The firm also sees potential for the company's 2025 estimates to benefit from various sources, which could lead to further upside. This optimistic outlook underpins UBS's decision to launch coverage with a Buy rating and a DKK320 price target.
In other recent news, Demant A/S has been the subject of various analyst adjustments. Jefferies upgraded Demant's stock from an Underperform to a Hold rating, setting a price target of DKK275.00. This change comes despite a reduction in the projected earnings per share for 2024 by roughly 6%, reflecting a subdued second quarter and an updated outlook for 2024. The firm sees the stock's performance as better than its hearing aid peers, despite ongoing challenges in the Managed Care sector.
Simultaneously, Morgan Stanley upgraded Demant's stock from an 'Underweight' to an 'Overweight' rating, raising its price target from DKK268.00 to DKK320.00. Factors such as a significant drop in share price since March 2024, successful expansion in the Veterans Affairs (VA) channel, and a divergence in performance with competitor Sonova influenced this decision.
Morgan Stanley sees the current valuation of Demant's shares as an attractive entry point, with the stock trading at what they consider trough levels compared to its peers.
Despite these upgrades, Jefferies reduced Demant's price target to DKK275.00, reflecting an 11% decrease from the prior target, due to a weaker-than-expected first-quarter performance. The firm also marked down the earnings per share forecast for 2024 by about 4%, primarily attributed to increased financial expenses.
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