J.P. Morgan Cautious on European Medtech, Cites Hearing Aid Market as Key Bright Spot

J.P. Morgan has signaled caution for the European Medtech and Services sector heading into the latter half of 2026, citing a disconnect between the sector's market recovery and its underlying earnings fundamentals. According to a note from the bank, the recovery has been driven more by improving market conditions and sector rotation rather than broad-based earnings upgrades.

A Fragile Recovery

Analysts at J.P. Morgan noted that the European Medtech sector's performance has been volatile, with declines of 15% in the first quarter and 7% in the second quarter—ranking among the sector's worst quarters in the last 20 years. While the market was flattish in the third quarter, it was down 4% in the first week of September.

The bank observed that analyst downgrades outpaced upgrades during the period. The recovery was instead supported by a rotation out of technology stocks into the broader healthcare space and positive second-quarter results from a select few companies, including Fresenius and Demant.

Hearing Aids Drive Growth

A key area of strength identified by J.P. Morgan is the hearing aid market, which has begun a notable recovery, according to company commentary from the second quarter. The bank anticipates that new product launches from all three publicly listed manufacturers will help sustain this market growth.

Within this sub-sector, J.P. Morgan's preferred stocks are:

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• Demant (Overweight)
• Amplifon (Overweight)

Stock-Specific Outlooks

J.P. Morgan designated German healthcare group Fresenius SE as its top pick with an "overweight" rating. Analysts cited a strong setup for the second half, a track record of beating estimates, and potential for double-digit earnings-per-share growth that could justify a higher valuation.

Conversely, the bank placed several companies on Negative Catalyst Watch:

• Ambu (Neutral): Ahead of its Nov. 5 results, J.P. Morgan expressed concern that consensus expectations for a 230-basis-point margin expansion in fiscal 2027 may be too optimistic due to expiring tariff refunds and foreign exchange headwinds.
• Elekta (Underweight): Ahead of a key industry meeting from Sept. 26-30, analysts see a new product launch from a competitor as a significant headwind.

J.P. Morgan also sees continued downside risk to fiscal 2027 consensus estimates for Carl Zeiss and Fresenius Medical Care, both rated "underweight," due to ongoing market and company-specific challenges.