RBC Capital has upgraded ConvaTec Group PLC (LSE:CTEC) to 'outperform', arguing that the recent share price weakness looks overdone and now represents a buying opportunity.
The shares have slipped by about 20% since June on concerns over looming US reimbursement changes, rules that govern how much insurers, including Medicare, pay for certain medical treatments.
According to RBC, the likely revenue impact is fairly modest: management has guided to a 1–2% hit in 2026 from lower payments on skin substitutes, followed by another 1–2% in 2027 from changes in ostomy and continence care.
RBC calculates that even in a bearish scenario, the effect on earnings would be limited to a low double-digit percentage, much less than the fall in the share price.
ConvaTec develops devices used in wound care, ostomy (after bowel surgery), continence, and infusion therapy.
These are not glamorous markets, but they are steady, with structural growth of 4–7% a year. RBC notes the company now trades on just 16.5 times expected 2026 earnings – the lower end of its five-year range and below its usual premium to peers.
Medium-term, management is targeting 5–7% annual revenue growth and margins of 24–26% by 2027.
RBC has pencilled in only the lower end of that range, which leaves room for upgrades if execution is solid and reimbursement changes prove less harsh than feared.
The analysts also highlight the recently announced $300 million (£236m) share buyback, which should provide a small boost to earnings per share from 2025.
On valuation, RBC applies a 20 times price-earnings multiple to 2027 forecasts, producing a new price target of 315p (down slightly from 320p to reflect reimbursement uncertainty). That compares with a current share price of 244p.
In short, while regulatory risk remains, RBC thinks the balance of risk and reward now tilts firmly in shareholders’ favour. Clarity on reimbursement, expected later this year, could act as the next catalyst.
The shares were up 1% at 246.89p.