We came across a bullish thesis on Solventum Corporation (NYSE: SOLV) at Valueinvestorsclub by GCA. In this article we will summarize the statement of the Bulls about SOLV. The shares of the company were traded at $ 74.24 when this dissertation was published, versus the final price of $ 66.19 on 11 April.
A medical technician who keeps the instruments in her hands
SOLV is a health care company that develops, produces a portfolio of solutions to tackle critical customer and patient needs in the United States and internationally. The company has four operational segments, namely MedSurg, dental solutions, health information systems and purification and filtration. Medical/surgical (Medsurg) accounts for more than 50% of income and offers products related to speed healing and medical technologies. The remaining 45% of the income is almost equal to the other three segments.
SOLV has been working for more than 70 years and orders a leading position in most of its brands. Solv FCF worth $ 1.4 billion was generated prior to his spin-off. It is expected that this will be marginal to $ 1.1 billion with higher working capital and Capex requirements.
However, the potential to improve cannot be excluded because SOLV had previously not been stopped by management at 3m. SOLV was subject to unfavorable service agreements with 3M and charged with high debt levels. The potential for growth was limited due to a low capital allocation. The spin-off will offer more favorable prospects for the SOLV company and better management of its capital. There is also a possibility of an expansion of a 2% margin with better R&D expenditure and commercialization of its products as a self -standing company. The CEO and CFO have previously achieved similar operational efficiency with a different spin-off, Covidien, and so the idea of better financial performance does not seem to be far-fetched.
With an expected revenue growth of 2% and an extension of the margin from 22% to 24%, SOLV should reach an EBIT of $ 2.1 billion in 2027. Accounting for a multiple of 14x based on comparable companies, a real value of the stock price in 2027 would be $ 146, a 120% top.
Although we recognize the potential of SOLV as an investment, our conviction is the belief that some AI shares have a greater promise for supplying a higher efficiency within a shorter time frame. If you are looking for an AI share that is promising than SOLV, but that acts with less than 5 times its income, view our report on the Cheapest AI stock.
