Fresenius Med. Care : Dramatic proposed cuts by Medicare
BUY, Fair Value EUR53.5 vs. EUR65.5 (+8%)
There is no doubt that the proposed rebasing by the Centers for Medicare Services (CMS) exceeded most bearish scenarios with a Bundle set at USD217 for 2014 (vs USD241). CMS took into account drops in EPO use to make a negative adjustment of 12%, more than offsetting the 2.5% positive impact from the market basket increase. This translates into a negative impact on FME revenues and EBIT of c.USD440m and 20% in net income for 2014. We chose to include the CMS proposal in our numbers leaving room for less negative surprises and therefore adjust our fair value to EUR53.5. Our buy recommendation is maintained as we believe final ruling could provide some relief but we acknowledge that uncertainties are at their peak.
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