Barclays initiates Carl Zeiss Meditec at "overweight," sees 26% upside on China

Barclays has initiated coverage on Carl Zeiss Meditec AG (AFXG) with an "overweight" rating and a €52 price target, implying a 26% potential upside. The positive outlook is underpinned by AFXG's consistent market share gains in Surgical Ophthalmology, an anticipated rebound in China's refractive consumables market, and its strong position in the premium intraocular lens segment. Barclays forecasts 7% compound annual revenue growth and margin expansion for the group, noting the stock's current valuation is at a decade low, despite potential risks from a faltering China recovery or volume-based procurement.

Analysis

Barclays has initiated coverage on Carl Zeiss Meditec AG (AFXG) with an “overweight” rating and a €52 price target, indicating a 26% potential upside from its recent closing price. The bullish thesis is built on three pillars: sustained market share gains, a rebound in the Chinese market, and a strong position in premium products. Specifically, the company has gained 100 basis points of market share in Surgical Ophthalmology between 2019 and 2024 and is projected to grow its relevant businesses at 8% from 2025-2028, outpacing the market's 6%. A key catalyst is the anticipated recovery in China's refractive consumables market, where Barclays' base case of 5% volume growth in FY25/26 could place its adjusted EBITA projections 3% above consensus. Furthermore, the company is well-positioned to capitalize on premiumization trends, with 60% of its intraocular lens (IOL) sales coming from premium products, compared to a 44% market average. This underpins a group-level forecast of 7% compound annual revenue growth and 400 basis points of margin expansion through FY28. Critically, this positive outlook is contrasted with a valuation at a 10-year low, with the stock trading at approximately 20 times forward earnings and 10 times EV/EBITDA, well below Barclays' fair value multiples. While risks from a faltering China recovery or IOL procurement pressures exist, the report also highlights a significant upside scenario of €75 per share, representing an 80% potential gain.

Key Decisions for Investors

• Given the stock's decade-low valuation and Barclays' forecast for above-market growth, investors could view the current price as an attractive entry point, particularly if they are constructive on the medical technology sector.
• Investors should closely monitor leading indicators for the refractive surgery market in China, as a sustained volume recovery is the primary catalyst underpinning the report's above-consensus earnings estimates.
• While the base case is compelling, the identified risks of margin pressure from volume-based procurement and a potential stall in the China recovery should be considered, warranting careful risk management and position sizing.