J.P. Morgan Downgrades Coloplast, Cuts Target as Valuation Gap Widens

J.P. Morgan downgraded Coloplast to "underweight" from "neutral" in a note dated Wednesday, citing a valuation disconnect after the medical technology company's shares failed to reflect a deteriorating earnings profile despite trading at a premium to sector peers, sending the stock down more than 3%.

The broker also cut its December 2027 price target to DKK 377 from DKK 484, implying roughly 18% downside from Coloplast's September 8 closing price of DKK 446.70.

Coloplast currently has a market capitalization of $15.11 billion, with 218 million shares outstanding, and its 52-week trading range spans from DKK 637.80 at the high end down to DKK 369.70.

J.P. Morgan analyst Anchal Verma, who now leads coverage of the stock, noted that shares are trading at approximately 18 times projected fiscal 2027 earnings, representing a roughly 20% premium to the medtech sector, even though expected earnings growth runs about 20% below the sector.

The bank said the premium would only be justified if earnings-per-share growth were to reach high-single-digit to low-double-digit percentages, but its current forecast calls for EPS growth of just 3% in fiscal 2027.

Under the revised price target, the stock's implied trading multiple stands at about 14.5 times, which J.P. Morgan noted is broadly in line with the European medtech sector.

The new price target reflects a probability-weighted approach across three scenarios for mid-term guidance, which J.P. Morgan expects Coloplast's new chief executive to revise the fiscal year results on November 3.

The broker assigned a 40% probability to a bear case, in which sales growth guidance is cut to 5-6% and margins compress to around 25% due to growth investments, implying 30% downside and a price target of DKK 313.

It assigned a 50% probability to a base case featuring 6-7% sales growth with steady margins, implying 10% downside and a target of DKK 411. A bull case carries a 10% probability, assuming the current 7-8% growth target is maintained, which would imply 3% upside and a target of DKK 470.

J.P. Morgan noted that the stock has already fallen about 25% over the last twelve months, but the bank believes the earnings profile has continued to deteriorate and that further downgrades are likely. Consequently, shares should trade in line with or at a discount to the sector rather than at a premium.

The bank cited three near-term concerns: challenges in improving commercial execution across the U.S. chronic care channel amid competition from Convatec, continued softness in the biologics market at Kerecis following reimbursement changes, and ongoing cost inflation. It also pointed out that EBIT margins have declined by more than 4 percentage points over the past five years.

J.P. Morgan lowered its fiscal 2027 adjusted earnings-per-share estimate to DKK 27.20 from DKK 27.58, a 1.4% reduction, and trimmed its fiscal 2027 group sales estimate to DKK 30.83 billion from DKK 30.958 billion previously, a 0.4% decrease.

The broker stated that the key risk to its "underweight" rating is if a mid-term guidance reset clears the way for the new CEO to execute, potentially supporting a re-rating.

Upside risks include a return to high-single-digit organic sales growth, margins recovering to around 30%, and improved capital allocation, including reducing leverage below 2 times and maintaining the dividend policy.