Why Fresenius (FMS) is a Top Value Stock for the Long-Term

While the proven Zacks Rank places an emphasis on earnings estimates and estimate revisions to find strong stocks, we also know that investors tend to develop their own individual strategies. With this in mind, we are always looking at value, growth, and momentum trends to discover great companies.

Looking at the history of these trends, perhaps none is more beloved than value investing. This strategy simply looks to identify companies that are being undervalued by the broader market. Value investors rely on traditional forms of analysis on key valuation metrics to find stocks that they believe are undervalued, leaving room for profits.

Zacks has developed the innovative Style Scores system to highlight stocks with specific traits. For example, value investors will be interested in stocks with great grades in the "Value" category. When paired with a high Zacks Rank, "A" grades in the Value category are among the strongest value stocks on the market today.

Fresenius Medical Care AG & Co. (FMS) is a stock many investors are watching right now. FMS is currently sporting a Zacks Rank of #2 (Buy), as well as a Value grade of A. The stock has a Forward P/E ratio of 11.85. This compares to its industry's average Forward P/E of 32.83. Over the past year, FMS's Forward P/E has been as high as 16.85 and as low as 10.51, with a median of 11.95.

These are just a handful of the figures considered in Fresenius Medical Care AG & Co.'s great Value grade. Still, they help show that the stock is likely being undervalued at the moment. Add this to the strength of its earnings outlook, and we can clearly see that FMS is an impressive value stock right now.

Zacks Investment Research

Fresenius Medical Care AG & Co. FMS reported third-quarter 2024 adjusted earnings per share (EPS) of 45 cents, which surpassed the Zacks Consensus Estimate by 7.1%. The bottom line improved 45.2% year over year.

During the reported quarter, the company’s closed divestments included clinic operations in Curacao, Guatemala and Peru.

Stay up-to-date with all quarterly releases: See Zacks Earnings Calendar.

Revenue Detail

Revenues of $5.23 billion (EUR 4,760 million) missed the Zacks Consensus Estimate by 2.4%. The company’s reported revenues were down 3.6% year over year and 2.4% at constant currency (cc). However, revenues were up 1.9% organically.

Per management, the top line was hurt by divestitures realized through the third quarter as it negatively impacted growth by 230 basis points.

Segmental Details

Fresenius Medical implemented a new operating model during the first quarter and started reporting under two new segments, Care Delivery and Care Enablement.

Care Delivery

The segment’s revenues were down 5.1% on a year-over-year basis and 4.2% at cc but gained 1% on an organic basis.

Revenues in the U.S. markets declined 1.3% and gained 0.4% on an organic basis. The top line was flat year over year at cc. The decline was due to the impact of divestitures closed this year. However, organic sales were driven by value-based care business growth, higher reimbursement rates and a favorable payer mix.

Per management, during the third-quarter 2024, the U.S. same-market treatment growth improved sequentially. During the quarter under discussion, adjusted for the exit from less profitable acute care contracts (-0.2%), underlying the U.S. same market treatment growth returned to positive growth (+0.2%). However, effects from elevated mortality continued to weigh on the development.

International sales declined 21.6% reportedly and 20.9% at cc but gained 4.4% on an organic basis. The decline was due to divestments realized as part of the portfolio optimization plan and was partially offset by organic growth. The organic growth was supported by accelerated same-market treatment growth of 2.9% and higher reimbursement rates.

Care Enablement

The segment’s revenues increased 2.2% year over year reportedly and 4.2% at cc as well as organically. The growth was driven by solid volume development across all geographical regions. Also, the continued pricing momentum, excluding China, added to this growth.

Fresenius Medical Care AG & Co. KGaA Price, Consensus and EPS Surprise

Fresenius Medical Care AG & Co. KGaA price-consensus-eps-surprise-chart | Fresenius Medical Care AG & Co. KGaA Quote

Margin Analysis

Operating income rose 42.7% from the prior-year quarter’s level. The metric was up 42.8% at cc. Operating margin was 9.7%, up 310 bps from the year-ago quarter’s reported actuals.

2024 Guidance

Fresenius Medical maintained its outlook for 2024 revenues while revising its outlook for operating income. The company continues to expect revenues to grow at a low-to-mid single-digit percentage rate. The operating income is now estimated to grow at 16-18% as compared to the previous outlook of mid- to high-teen percentage rate growth.

Our Take

FMS exited the third quarter on a mixed note, with its earnings reflecting strong organic growth on the back of improving treatment volumes as well as a stabilizing labor environment in the United States. Continued improvement in these two key factors should be beneficial for the company in the rest of 2024. Overall pricing momentum also supported growth in the Care Enablement segment. However, the effects of elevated mortality will likely continue to hurt sales.

Meanwhile, FMS’ newly implemented operating model led to operational improvements. The bottom line was hurt by inflationary cost increases in energy, material and personnel. These headwinds are likely to improve over the year, which is also reflected in the company’s operating outlook. FMS expects to realize further improvements in its operational performance and transformation efforts in the fourth quarter of fiscal 2024.

In the third quarter, FMS generated 64 million euros in savings by implementing initiatives under its FME25 transformation program. FMS delivered EUR 173 in million additional sustainable savings year-to-date, thus getting well ahead of the targeted EUR 100 to 150 million by year-end 2024. Fresenius Medical expects to save 650 million euros by the end of 2025. However, the portfolio optimization plan is estimated to negatively impact operating income by around EUR 250 million for the full-year 2024.

The company’s continued divestment of its noncore and dilutive assets seem promising, as it will help focus on its core and growing categories as well as boost its cash resources.

FMS’ Zacks Rank & Other Stocks to Consider

FMS carries a Zacks Rank #2 (Buy) at present.

Some other top-ranked stocks in the broader medical space are AngioDynamics ANGO, Quest Diagnostics DGX and RadNet RDNT. All three stocks carry a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

ANGO’s earnings surpassed estimates in three of the trailing four quarters and missed once, delivering an average surprise of 31.71%.

AngioDynamics’ shares have lost 19.2% year to date against the industry’s 6.1% growth.

Quest Diagnostics has an estimated long-term growth rate of 6.8%. DGX's earnings surpassed estimates in each of the trailing four quarters, with the average being 3.3%.

Quest Diagnostics has gained 42% compared with the industry's 14.9% growth year to date.

RadNet’s earnings surpassed estimates in each of the trailing four quarters, with the average surprise being 98.2%.

RDNT's shares have surged 93.7% year to date compared with the industry’s 14.8% growth.

Zacks Investment Research

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The research service features daily updates of the Zacks Rank and Zacks Industry Rank, full access to the Zacks #1 Rank List, Equity Research reports, and Premium stock screens, all of which will help you become a smarter, more confident investor.

It also includes access to the Zacks Style Scores.

What are the Zacks Style Scores?

Developed alongside the Zacks Rank, the Zacks Style Scores are a group of complementary indicators that help investors pick stocks with the best chances of beating the market over the next 30 days.

Each stock is given an alphabetic rating of A, B, C, D or F based on their value, growth, and momentum qualities. With this system, an A is better than a B, a B is better than a C, and so on, meaning the better the score, the better chance the stock will outperform.

The Style Scores are broken down into four categories:

Value Score

Finding good stocks at good prices, and discovering which companies are trading under their true value, are what value investors like to focus on. So, the Value Style Score takes into account ratios like P/E, PEG, Price/Sales, Price/Cash Flow, and a host of other multiples to highlight the most attractive and discounted stocks.

Growth Score

Growth investors are more concerned with a stock's future prospects, and the overall financial health and strength of a company. Thus, the Growth Style Score analyzes characteristics like projected and historic earnings, sales, and cash flow to find stocks that will see sustainable growth over time.

Momentum Score

Momentum investors, who live by the saying "the trend is your friend," are most interested in taking advantage of upward or downward trends in a stock's price or earnings outlook. Utilizing one-week price change and the monthly percentage change in earnings estimates, among other factors, the Momentum Style Score can help determine favorable times to buy high-momentum stocks.

VGM Score

If you want a combination of all three Style Scores, then the VGM Score will be your friend. It rates each stock on their combined weighted styles, helping you find the companies with the most attractive value, best growth forecast, and most promising momentum. It's also one of the best indicators to use with the Zacks Rank.

How Style Scores Work with the Zacks Rank

The Zacks Rank, which is a proprietary stock-rating model, employs earnings estimate revisions, or changes to a company's earnings expectations, to make building a winning portfolio easier.

#1 (Strong Buy) stocks have produced an unmatched +25.41% average annual return since 1988, which is more than double the S&P 500's performance over the same time frame. However, the Zacks Rank examines a ton of stocks, and there can be more than 200 companies with a Strong Buy rank, and another 600 with a #2 (Buy) rank, on any given day.

But it can feel overwhelming to pick the right stocks for you and your investing goals with over 800 top-rated stocks to choose from.

That's where the Style Scores come in.

You want to make sure you're buying stocks with the highest likelihood of success, and to do that, you'll need to pick stocks with a Zacks Rank #1 or #2 that also have Style Scores of A or B. If you like a stock that only as a #3 (Hold) rank, it should also have Scores of A or B to guarantee as much upside potential as possible.

As mentioned above, the Scores are designed to work with the Zacks Rank, so any change to a company's earnings outlook should be a deciding factor when picking which stocks to buy.

Here's an example: a stock with a #4 (Sell) or #5 (Strong Sell) rating, even one with Style Scores of A and B, still has a downward-trending earnings outlook, and a bigger chance its share price will decrease too.

Thus, the more stocks you own with a #1 or #2 Rank and Scores of A or B, the better.

Stock to Watch: Fresenius (FMS)

Based in Bad Homburg, Germany, Fresenius Medical Care AG & Co. KGaA is one of the largest integrated providers of products and services for individuals undergoing dialysis following chronic kidney failure.

FMS is a #2 (Buy) on the Zacks Rank, with a VGM Score of A.

Momentum investors should take note of this Medical stock. FMS has a Momentum Style Score of B, and shares are up 1.7% over the past four weeks.

For fiscal 2024, one analysts revised their earnings estimate upwards in the last 60 days, and the Zacks Consensus Estimate has increased $0.01 to $1.52 per share. FMS boasts an average earnings surprise of 19%.

With a solid Zacks Rank and top-tier Momentum and VGM Style Scores, FMS should be on investors' short list.

Zacks Investment Research

The broad market exchange-traded fund SPDR S&P 500 ETF Trust was up 0.1% and the actively traded Invesco QQQ Trust was 0.3% higher in Tuesday's premarket activity as US citizens head to polling stations for the 2024 presidential elections.

US stock futures also edged higher, with S&P 500 Index futures up 0.1%, Dow Jones Industrial Average futures advancing 0.1%, and Nasdaq futures gaining 0.3% before the start of regular trading.

September's international trade in goods and services bulletin will be released at 8:30 am ET, followed by the ISM services index for October at 10 am ET.

In premarket activity, bitcoin was up by 2.2% and the cryptocurrency fund ProShares Bitcoin Strategy ETF was 2.3% higher.

Power Play:

Technology

Technology Select Sector SPDR Fund advanced 0.4%, and the iShares US Technology ETF was 0.03% higher, while the iShares Expanded Tech Sector ETF was up 0.2%. Among semiconductor ETFs, SPDR S&P Semiconductor ETF was down 0.4%, while the iShares Semiconductor ETF rose by 0.4%.

Marqeta shares were down nearly 39% in recent Tuesday premarket activity after the company reported a Q3 net loss late Monday.

Winners and Losers:

Industrial

Industrial Select Sector SPDR Fund , the Vanguard Industrials Index Fund , and the iShares US Industrials ETF were inactive.

Timken stock was down 5.2% before the opening bell after the company reported lower Q3 adjusted earnings and net sales.

Consumer

The Consumer Staples Select Sector SPDR Fund was down 0.02%, while the Vanguard Consumer Staples Fund was inactive. The iShares US Consumer Staples ETF was inactive, and the Consumer Discretionary Select Sector SPDR Fund gained 0.3%. The VanEck Retail ETF and the SPDR S&P Retail ETF were inactive.

Ferrari shares were down 3.2% pre-bell after the company reported lower-than-expected Q3 net revenue.

Energy

The iShares US Energy ETF was inactive, while the Energy Select Sector SPDR Fund was up by 0.1%.

Marathon Petroleum stock was up 2.9% before Tuesday's opening bell after the company reported forecast-beating Q3 adjusted earnings and revenue.

Health Care

The Health Care Select Sector SPDR Fund advanced 0.2%. The Vanguard Health Care Index Fund , the iShares US Healthcare ETF , and the iShares Biotechnology ETF were inactive.

Fresenius Medical Care stock was up 1.7% premarket after the company reported higher Q3 earnings.

Financial

Financial Select Sector SPDR Fund advanced 0.04%. Direxion Daily Financial Bull 3X Shares was up 0.3%, while its bearish counterpart Direxion Daily Financial Bear 3X Shares was 0.1% lower.

Broadridge Financial Solutions shares were down 1.4% pre-bell Tuesday after the company reported lower fiscal Q1 adjusted earnings and revenue.

Commodities

Front-month US West Texas Intermediate crude oil rose by 0.6% to $71.92 per barrel on the New York Mercantile Exchange. Natural gas fell 0.6% to $2.76 per 1 million British Thermal Units. United States Oil Fund was up 0.4%, while the United States Natural Gas Fund lost 0.1%.

Gold futures for December advanced 0.1% to $2,749.50 an ounce on the Comex, while silver futures gained 0.3% to reach $32.72 an ounce. SPDR Gold Shares increased by 0.1%, and iShares Silver Trust was 0.3% higher.