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Fresenius Medical Inks $2B Deal to Take Over NxStage Medical

Zacks Equity Research
Updated

In an initiative to boost its long-term strategy or the ‘Growth-Strategy 2020’, Fresenius Medical Care FMS recently signed an agreement to acquire all outstanding shares of NxStage Medical NXTM for $30 a share.

The transaction has been valued at $2 billion and is subject to close by 2018, on approval of NxStage stockholders and other customary conditions. Fresenius expects the acquisition to prove accretive to earnings within three years from deal closure.

Furthermore, the deal is expected to provide annual pretax cost savings of $80 million to $100 million over the next three to five years. Fresenius also expects integration costs of about $150 million over the next three years from the time of announcement.

Per management, the takeover will boost revenues at the Care Coordination segment. In this regard, in the last quarter, margins at Care Coordination declined substantially on a year-over-year basis owing to lower profits in vascular services and higher costs in pharmacy services. We believe the latest development will help the company counter the pressure on margins.

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Growth-Strategy 2020 at a Glance

Per management, the latest development is a significant step to boost the company’s grand long-term goal. Fresenius has set up a strong long-term objective – ‘Growth-Strategy 2020’ – to formulate a few initiatives for attaining solid market traction.

Per the postulates of ‘Growth-Strategy 2020’, Fresenius aims to boost its revenues to $28 billion by 2020, corresponding to an average annual growth rate of around 10% by enhancing its core business and the Care Coordination unit.

Meanwhile, for full-year 2017, Fresenius estimates revenue growth of 8–10% at cc. Net income attributable to shareholders of the company is likely to increase around 7–9%.

Shares Shine Bright

Meanwhile, the stock represents a solid return of 11.5%, comparing favorably with the broader industry’s gain of just 9.7% over the last six months. Furthermore, Fresenius promises a long-term expected earnings growth rate of almost 10.1%. This indicates chances of outperformance over the long haul.

We note that Fresenius sports a Zacks Rank #1 (Strong Buy), courtesy of a solid estimate revision trend with two estimates moving north in the last two months for the full year. Notably, current year estimates for the stock rose 2.7% to $2.27 per share over the same time frame.

Our Take

Fresenius provides a wide range of Dialysis products in its own dialysis clinics and to third-party clinics. The company offers a wide array of Hemodyalisis, Peritoneal dialysis and Acute Dialysis products as well. However, the latest development is expected to fortify the company’s foothold in the Home dialysis market, particularly in the renal care space. Per data from News 12 Long Island, the global renal dialysis market is expected to see a CAGR of 7.1% and reach a worth of $26.6 billion by 2023.

Key Picks

A few other top-ranked stocks in the broader medical sector are Edwards Lifesciences Corporation EW and IDEXX Laboratories, Inc. IDXX.

Notably, Edwards Lifesciences sports a Zacks Rank #1, while IDEXX Laboratories has a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Edwards Lifesciences has a long-term expected earnings growth rate of 15.2%. Notably, the stock has returned 28.6% over the last six months.

IDEXX Laboratories has a long-term expected earnings growth rate of 19.37%. Additionally, the stock represents an impressive one-year return of 40.8%.

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Fresenius Medical Care Corporation (FMS) : Free Stock Analysis Report
 
IDEXX Laboratories, Inc. (IDXX) : Free Stock Analysis Report
 
Edwards Lifesciences Corporation (EW) : Free Stock Analysis Report
 
NxStage Medical, Inc. (NXTM) : Free Stock Analysis Report
 
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