Grifols Expected to See Significant Upside

Grifols has demonstrated significant improvement over the past few quarters and annual period, reinforcing the author's investment thesis. The company has shown strong performance, and the author expects further upside to materialize.

Grifols (NASDAQ: GRFS) has shown significant improvement over the past few quarters and annual period, reinforcing the author's investment thesis. The company has demonstrated robust performance, with strong revenue and EBITDA growth, and an impressive reduction in leverage. These improvements suggest that further upside is likely to materialize, making Grifols an attractive investment opportunity.

The company's core operations in blood plasma collection have shown resilience and growth. Grifols holds a 20% market share of blood plasma collection globally, with a strong collection infrastructure established over the past 60 years. The company's focus on countries where paying for blood/plasma donations is legal has allowed it to maintain a competitive edge. In the second quarter of 2025, Grifols achieved 7% revenue growth, 12.5% EBITDA growth, and over 20% growth at constant currencies. These results indicate a strong recovery trajectory for the company.

One of the key drivers of Grifols' improvement has been its focus on deleveraging. The company's leverage has declined from over 6-7x to 4.2x in less than six months. This reduction in leverage has not only improved the company's financial health but has also enabled it to reinstate its dividend, a significant positive for investors. The dividend, while not large, is an encouraging sign of the company's improved financial position.

Grifols' biopharma operations, including those under the Talecris subsidiary, have also shown promising growth. The company's advanced diagnostic segment is set to reinforce its market position and improve profitability. Gross margins have reached nearly 40%, and EBITDA margin on an adjusted basis is over 25%, reflecting the company's strong operational performance.

The company's outlook for the fiscal year 2025 has been improved, with expectations of higher earnings and a significant increase in free cash flow. The company's long-term advantages, such as its leading market position and improving fundamentals, suggest that it is well-positioned for continued growth. The author expects the company to drive earnings per share (EPS) up and achieve an average annualized EPS growth of around 28% until 2027.

Valuation-wise, Grifols appears undervalued compared to its historical averages. The author suggests that the company's fair value is around €39/share, with a potential total return on investment (RoR) of 218% in three years. This valuation implies a potential price target of around €32/share, a significant increase from the author's previous price target of €20/share.

However, the company faces risks, including the potential for competition from novel technologies that could replace traditional plasma collection. The author acknowledges this risk but believes that Grifols' leading market position and strong fundamentals mitigate this risk.

In conclusion, Grifols has demonstrated significant improvement and growth, reinforcing the author's investment thesis. The company's strong performance, reduced leverage, and improved financial position suggest that further upside is likely to materialize, making Grifols an attractive investment opportunity for investors and financial professionals.