EUR 850.00 For Business Accounts Only

Morningstar | Strong Start for Fresenius Medical Care Bodes Well for Dialysis Providers

Fresenius Medical Care reported a first quarter that fell within our expectations. We're encouraged that the firm is beginning the year tracking well against its full-year outlook following a tumultuous 2018. As we update our model, we don't intend to change our fair value estimate of EUR 82 per share ($47 per ADR) for this narrow-moat franchise. With shares beginning to more convincingly converge on fair value, we'd highlight peer DaVita as an alternative investment opportunity in the space trading at a much steeper discount to our valuation.

There's not a lot to dislike in Fresenius' results, but same-facility treatment growth in the United States market was by far the standout figure, in our opinion. At 3.7%, this was likely one of the best quarterly results in the last few years and marks an acceleration from a 2.7% figure over the course of 2018. This helped dialysis services revenue in the firm's North American segment expand by 5.6% in constant currency, coming in well ahead of our model. This result gives us some added confidence as we await first-quarter results from DaVita early next week, but we'd also highlight the unexpected divergence in reported U.S. treatment growth between the two companies late last year.

Profitability across the enterprise met our expectations, with stability in the North American segment helped by margin improvement internationally. While favorable currency development provided a tailwind, mid-single-digit organic, constant-currency revenue growth also contributed to strong global performance.

As previously announced, Fresenius finally closed its acquisition of NxStage Medical in the quarter. The business is expected to begin contributing to operating profitability in 2020, and we'll be looking for increasing penetration of its System One home hemodialysis device under Fresenius' ownership as a key indicator of success.

Please see our recent report, "Attractive Home Dialysis Economics Support Providers' Moats," for a deeper dive into the home dialysis market opportunity.