Report
Debbie Wang
EUR 850.00 For Business Accounts Only

Morningstar | ConvaTec is struggling to overcome operational problems, but its narrow moat is intact.

Since its initial public offering two years ago, ConvaTec has followed a familiar playbook to press its advantage in advanced wound care and enhance its ostomy business. By and large, we like ConvaTec’s businesses that focus on chronic care, which translates into an ongoing stream of revenue. However, the company has lagged significantly behind its key competitor, Coloplast. From our perspective, there is plenty of opportunity for ConvaTec to remedy the situation, but its ability to execute a solid strategy will depend on new management.We like the firm's strategy of innovation and patient retention, but for every step forward, ConvaTec has also seen setbacks in the form of packaging recalls, inventory shortages, and manufacturing glitches. We think improved execution of the strategy could turn around this company, but odds of success hinge on finding the right permanent CEO with a strong background in operations.In contrast to Coloplast’s dominant positions in ostomy and continence care, ConvaTec’s particular strengths are in advanced wound care and infusion sets for insulin pumps, thanks to investments and acquisitions by its private equity owners. As a result, ConvaTec has a formidable footprint in the wide-ranging market, including antimicrobial dressings and hydrofiber. We expect ConvaTec can extend the strength of its Aquacel brand to take more share in the $1.2 billion foam dressing segment. It enjoys market leadership in infusion sets, which we anticipate will continue, thanks to strong relationships with the pump makers.On the other hand, ConvaTec’s ostomy business suffered from benign neglect under the private owners. Although the ostomy market has grown 5% annually on average, ConvaTec’s ostomy division has posted declines for the past four years. We like the firm’s plans to roll out new products, enhance its relationships with ostomy nurses, and implement a more robust patient after-care program to improve loyalty. With only three major competitors carving up this global market, we think conditions are favorable and expect ConvaTec to flex its muscles in ostomy and regain lost ground, if it can execute well.
Underlying
Provider
Morningstar
Morningstar

Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors.

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Analysts
Debbie Wang

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