J.P. Morgan cautious on European medtech despite hearing-aid-led recovery

J.P. Morgan has adopted a cautious stance toward the European Medtech and Services sector as it heads into the second half of 2026, noting that the sector's rebound has not been proportionally matched by earnings estimate revisions.

The sector was broadly flat in the third quarter and declined 4% in the first week of September, according to analysts, after falling 7% in the second quarter and 15% in the first quarter—a stretch the broker ranked among the segment's five worst quarters in 20 years.

The broker observed that downgrades exceeded upgrades during the quarter, while the recovery was instead underpinned by improving market conditions, particularly in hearing aids; second-quarter beat-and-raise results from companies including Fresenius and Demant; and a broader rotation out of tech and into healthcare.

Fresenius SE was singled out as the firm's top pick with an “Overweight” rating, citing an attractive setup for the second half, continued beat-and-raise delivery, and double-digit-plus earnings-per-share growth that J.P. Morgan believes should command a higher trading multiple.

J.P. Morgan said the hearing aid market has started to recover, a trend confirmed by second-quarter company commentaries, and new product launches by all three listed manufacturers should support market growth. Within the space, the broker prefers Demant and Amplifon, both rated “Overweight.”

Ambu, rated “Neutral,” was placed on Negative Catalyst Watch by J.P. Morgan ahead of its fourth-quarter results on Nov. 5, with the broker citing concerns around fiscal 2027 margin guidance.

Consensus expectations call for approximately 230 basis points of margin expansion, which J.P. Morgan cautions could prove optimistic as tariff refunds from fiscal 2026 roll off, foreign exchange remains a headwind, and investments in growth continue.

Elekta, rated “Underweight,” was also placed on Negative Catalyst Watch ahead of the American Society for Radiation Oncology meeting from Sept. 26 to 30, as J.P. Morgan views a new product launch by competitor Varian, part of Siemens Healthineers, as a key headwind.

The broker continues to see downside risk to fiscal 2027 consensus estimates for Carl Zeiss and Fresenius Medical Care, both rated “Underweight,” due to ongoing market and company-specific challenges. J.P. Morgan sees scope for further second-half upgrades at Fresenius SE and Demant, and describes Convatec's fiscal 2026 guidance as largely de-risked.