J.P. Morgan entered the second half of 2026 with a more cautious stance on the European Medtech and Services sector, warning that the observed market recovery has not been paralleled by comparable earnings upgrades.
Analysts at the broker described sector performance as largely muted in the third quarter, characterising it as flattish, and noted a 4% drop in the first week of September. That modest recovery followed earlier declines of 7% in the second quarter and 15% in the first quarter - with the broker noting that the first-quarter result ranked among the sector's five worst quarters in the past 20 years.
J.P. Morgan said the quarter saw more downgrades than upgrades, and that the market rebound was driven to a meaningful degree by improving market dynamics rather than broad-based earnings revision. In particular, the broker pointed to a recovering hearing-aid market, beat-and-raise quarterly results at companies such as Fresenius and Demant, and a wider rotation of funds out of Technology and into Healthcare as supporting factors.
The broker singled out Fresenius SE as its top pick in the sector, assigning an "overweight" rating. J.P. Morgan cited Fresenius SE's favourable position heading into the second half, a pattern of beat-and-raise results and projected double-digit-plus earnings-per-share growth that the broker said merits a higher trading multiple.
Within hearing aids, J.P. Morgan reported signs of a market recovery based on company commentaries in the second quarter. The broker highlighted the role of new product introductions by all three listed manufacturers in supporting market growth and expressed a preference for Demant and Amplifon, both rated "Overweight."
J.P. Morgan placed Ambu, which it rates "neutral," on Negative Catalyst Watch ahead of fourth-quarter results scheduled for Nov. 5. The broker cited concerns about fiscal 2027 margin guidance, noting that consensus is expecting roughly 230 basis points of margin expansion - a target the broker suggested could be optimistic as tariff refunds from fiscal 2026 roll off, foreign exchange remains a headwind and ongoing investments in growth continue.
Elekta was assigned an "underweight" rating and placed on Negative Catalyst Watch ahead of the American Society for Radiation Oncology meeting running Sept. 26-30. J.P. Morgan said a new product launch by competitor Varian, part of Siemens Healthineers, is a key headwind.
The broker also continues to see downside risk to fiscal 2027 consensus estimates for Carl Zeiss and Fresenius Medical Care, both rated "underweight," attributing that view to a mix of market and company-specific challenges.
Conversely, J.P. Morgan sees scope for further upgrades in the second half at Fresenius SE and Demant. The broker described Convatec's fiscal 2026 guidance as largely de-risked.
Contextual note: The broker's sector view blends company-specific assessments - from top picks to negative catalyst watches - with broader market observations on rotation and product cycles, particularly in hearing aids, and highlights both potential upside at select names and clear downside risks at others.