European medtech and life sciences valuations are at low levels, and the bar for recovery is low

Overview

This report reviews first-quarter 2026 results for the European medtech and life sciences sector. Overall, revenue performance was mostly in line with or slightly below market expectations, while demand trends remained mixed. Adjusted EPS generally beat expectations, but the outperformance was often driven by non-operating items such as lower-than-expected interest expense and taxes. Despite some quarterly beats, consensus adjusted EPS for full-year 2026 and 2027 across the coverage universe continues to be revised down, and sector valuations remain depressed.

Core views

The report's core view is that the bar for a sector recovery is already low. With low market expectations and low investor participation, even a slight improvement in consensus earnings could lead to a valuation rerating. The authors believe valuations may already be near, or may have established, a floor, but investors may still need to see more than one quarter of stable evidence before returning meaningfully. On positioning, the report favors companies with solid execution, strong cash flow, structural growth, and attractive valuations, and names Fresenius SE, Lonza, Ottobock, and Sartorius as top picks.

Analysis framework

The report combines a top-down sector performance review with bottom-up stock selection: it first compares Q1 revenue, EPS, and full-year guidance versus market expectations, then examines changes in 2026/2027 consensus estimates, valuation multiple ranges, subsector demand trends, and regulatory and geopolitical risks, and finally screens for companies with earnings visibility, valuation discounts, and catalysts across each subsector.

Methodology notes

• Industry earnings recapConsensus surprise analysis

  Compare the degree to which revenue, EPS, and full-year guidance deviate from market expectations.

  The report notes that most companies beat Q1 EPS expectations, with average outperformance of about 7.0% and median outperformance of about 6.5%; revenue was weaker, averaging about 0.6% below expectations, while the median was about 0.3% above expectations.

• Valuation analysisForward P/E range comparison

  Compare current next fiscal year P/E with the historical five-year valuation range.

  The chart shows that the sector's average next fiscal year P/E has compressed significantly from its 2021 peak and currently sits at roughly 18-19x, below the lower end of the five-year range at around 20x.

• Earnings expectation trackingAdjusted net income consensus index

  Track how 2026E and 2027E adjusted net income expectations change over time.

  The chart shows that 2026E and 2027E adjusted net income expectations have continued to trend lower since early 2025, falling to around 0.84-0.85 by April 2026.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Fresenius SE

  Top pick in the sector; Buy

  Strengths

  Helios and Kabi are showing positive operating momentum; the 2026 guidance is viewed as conservative and achievable; the balance sheet is healthy; cash flow is improving; and ROIC is rising.

  Weaknesses

  Uncertainty around German healthcare reform is weighing on the share price.

  Comparison

  Relative to Fresenius Medical Care, Fresenius SE benefits from a more diversified portfolio and a more resilient growth profile.

  Risks

  German hospital reform could have a larger-than-expected impact, and pressure on healthcare service pricing and costs could weigh on earnings.

• Lonza

  Top pick in the sector; Buy

  Strengths

  A global CDMO leader with resilient end markets, less exposure to geopolitics and tariffs, improving execution, and better cash flow and returns.

  Weaknesses

  A valuation recovery depends on continued delivery of high growth and high margins.

  Comparison

  Within CDMO, the report prefers Lonza, believing that its industry-leading growth and margins are not fully reflected in the current valuation.

  Risks

  Orders or capacity ramp-up could disappoint, and customer R&D and outsourcing demand could slow.

• Sartorius

  Top pick in the sector; Buy

  Strengths

  A leader in bioprocess equipment and consumables, benefiting from the end of post-pandemic inventory destocking, normalization in end markets, and a recovery in consumables demand.

  Weaknesses

  The headline valuation is not cheap, with a 2027E P/E of about 33x.

  Comparison

  Compared with companies that are recovering more slowly in equipment demand, Sartorius looks more attractive because of its consumables exposure and improving order momentum.

  Risks

  Equipment demand could recover more slowly than expected, China laboratory equipment demand remains weak, and biopharma capex is still cautious.

• Ottobock

  Top pick in the sector; Buy

  Strengths

  A global leader in prosthetics and orthotics, with growth and margin acceleration expected through 2026, conservative guidance that leaves room for upward revision, and a strong product pipeline.

  Weaknesses

  Growth was slower at the start of the year, and share price recovery will require evidence that acceleration is taking hold.

  Comparison

  Within prosthetics and orthotics, the company has industry-leading innovation and strategic positioning.

  Risks

  The expected growth acceleration could fail to materialize, and demand linked to wars and geopolitics is uncertain.

• Qiagen

  Relatively preferred within diagnostics; Buy

  Strengths

  Seen as the best positioned name in diagnostics.

  Weaknesses

  The diagnostics sector had a poor Q1 overall, and both demand and guidance are under pressure.

  Comparison

  Relative to Diasorin, the report sees lower downside risk in Qiagen.

  Risks

  Weak respiratory seasonality, lower hospital capex, structural changes in China, and supply-chain disruptions.

• Redcare Pharmacy

  Preferred online pharmacy name; Buy

  Strengths

  A good start to Q1, potential to raise 2026 guidance, improving German regulation, and higher reimbursement for prescription pharmacies should help profitability.

  Weaknesses

  Still exposed to online pharmacy competition and execution timing.

  Comparison

  The report remains constructive on Redcare, is more cautious on DocMorris because of financing uncertainty, and stays on the sidelines on Galenica because of its higher valuation.

  Risks

  Regulatory changes, slower-than-expected profit improvement, and intensifying competition.

• Coloplast

  Hold

  Strengths

  The valuation is already depressed, and long-term demand in chronic care has defensive characteristics.

  Weaknesses

  US CMS competitive bidding, lowered expectations for the Kerecis business, and a combination of regulatory and operational pressures.

  Comparison

  The report is not yet ready to turn positive solely because of the low valuation and is waiting for a strategic update from the new CEO.

  Risks

  US sales may be hit by competitive bidding, Kerecis may continue to miss expectations, and medium-term targets could be cut.

• Diagnostics sector

  Sector view is cautious

  Strengths

  Some companies still have a long-term base of testing demand and product portfolio support.

  Weaknesses

  Almost all companies posted disappointing Q1 results, and several have already lowered 2026 guidance.

  Comparison

  Qiagen is relatively better, while Diasorin is considered to have the highest downside risk and trades at a 15-30% premium to peers.

  Risks

  Weak respiratory seasonality, lower hospital capex, reduced migration testing volumes, structural changes in China, and supply-chain disruptions stemming from the Middle East conflict.

Key data

• Q1 EPS beatAverage +7.0%, median +6.5%Most companies beat adjusted EPS estimates, but some of the outperformance was driven by lower interest expense and lower taxes.
• Q1 revenue deviationAverage -0.6% vs. expectations, median +0.3% vs. expectationsRevenue trends still show a fairly mixed demand backdrop.
• 2026 guidance revisions13 companies reaffirmed, 5 lowered, 3 raisedThe revision trend was negative overall, but changes were modest on the sales side and more pronounced on the earnings side.
• Sector valuationNext FY P/E about 18-19xBelow the roughly 20x lower end of the five-year range and well below the 2021 high of around 37x.
• Top picksFresenius SE, Lonza, Ottobock, SartoriusThe report lists these alphabetically as the sector Top Picks.
• Fresenius SE valuation2027E P/E about 10xThe report believes the valuation does not fully reflect defensive end markets, high-single-digit EPS growth, balance sheet improvement, and higher ROIC.
• Lonza valuation2027E P/E about 22xThis is below its historical 25-38x range, which the report sees as attractive.
• Sartorius valuation2027E P/E about 33xThis sits at the low end of its historical 33-55x range and is supported, in the report's view, by mid-teens EPS CAGR.
• Ottobock valuation2027E P/E about 15xThe report believes this does not fully reflect continued double-digit earnings growth.

Impact & implications

For investors, the main appeal of the current sector setup comes from the combination of low valuations, low expectations, and low positioning, which creates upside elasticity. If upcoming quarters show that earnings expectations are stabilizing, consumables demand continues to recover, and CDMO order trends remain solid, the sector could see a rerating. But the opportunity is not uniform: the report emphasizes choosing between defensive demand, execution quality, cash flow, and valuation discounts rather than buying the entire sector indiscriminately.

Risks

• An extended or escalating Middle East conflict could push up inflation and input costs and further disrupt supply chains.
• If 2026 and 2027 earnings expectations continue to be revised down, low valuations may not be enough to trigger a recovery.
• Investors may need to see several quarters of stable performance before materially increasing exposure again.
• Policy factors such as German healthcare reform, US CMS competitive bidding, pharmacy regulation, and insurance reimbursement changes could affect company earnings.
• Demand recovery in China remains slow, and laboratory equipment, ophthalmics, and some medtech businesses may remain under pressure.
• Some subsectors carry company-specific risks, including Gerresheimer's accounting investigation, Schott Pharma's guidance credibility, DocMorris financing uncertainty, and the possibility of Siemens Healthineers share sales.

What to watch

• Whether Q2 2026 results confirm that earnings and orders have stabilized.
• Whether consensus adjusted EPS for 2026E and 2027E stops falling or starts to move higher.
• Whether life science consumables demand continues to recover and equipment demand improves from low levels.
• Whether CDMO order wins, US pharmaceutical reshoring, and customer outsourcing demand remain intact.
• The impact of inflation, the Middle East conflict, tariffs, and exchange rates on costs and margins.
• Fresenius SE's exposure to German hospital reform, Ottobock's growth acceleration, Sartorius's Q2 results, and Lonza's execution stability.
• Whether the second-half improvement assumed for the diagnostics sector actually materializes.