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Olympus Corp. (7733.T) is the world’s market share leader in the gastrointestinal endoscope market, controlling a 70% global market share.
Back in 2011, the company was at the centre of a large corruption scandal, that also happened to uncover the concealment of $1.5 billions in investment losses and led to the arrest of several board members and other executives.
In 2024 then, the previous CEO was arrested for purchasing illegal drugs, which led to his resignation and to the appointment of a new CEO, Bob White, an industry veteran that has previously held senior positions at Medtronic.
I believe this is important to mention, as all of these troubles have contributed to a board that is atypical for a Japanese company: out of 11 board members, 5 are foreigners (including the CEO) and 6 are Japanese.
As the activists are already on the board (ValueAct Capital Management L.P. has two seats), they’ve been very efficient in divesting the legacy unprofitable businesses to become a pure-play MedTech company, something that many Japanese businesses hesitate to do for cultural reasons. They’ve also taken off some healthy debt, divested from the cross shareholdings that are very common in Japanese corporate culture, and bought shares back. In short, they are one of the few companies to have embraced shareholder capitalism, in a country that historically has always had a “stakeholder first, shareholders last” corporate culture.
The management incentives are aligned with the shareholders, with Bob White compensation tied to EPS growth and relative Total Shareholder Return against a basket of global peers.
On February 13th, 2026 management cut the guidance for the full year from ¥94B to ¥50B-¥59B. Shares fell 16% in two days, and at the time of writing they’re at ¥1562, down 26% from a peak of ¥2112 one month ago.
The reasons for the guidance cuts are three:
1. Project Elevate
Going into the job, White was aware that FDA had issued three separate warning letters regarding their endoscope manufacturing facilities. Just a couple of weeks after he was appointed, in June 2025 the FDA officially issued “ship-holds”, barring 58 different models from entering the United States.
These are not new issues, as the FDA process is notoriously slow to act on these matters, and in April 2023 the legacy management had already started “Project Elevate”, a massive internal project to bring their facilities up to standard.
According to management Project Elevate, along with its army of external consultants, is on track to end by March 2026. However it’s currently costing ¥20B / year, and while the army of consultants will go away management has already clarified there will be an extra ¥10 billions / year in SG&A compliance expenses.
I don’t necessarily think this is a bad thing for Olympus, in my view compliance costs are widening the moat for the existing players and discourage competitors from attempting to entering the market.
2. Restructuring
The first major move White made since he came to office, White is cutting 2000 jobs in Europe and Japan. These are all admin jobs, unlikely to have an impact on the bottom line. Management is taking a ¥31B hit now to save ¥24B / year in the future.
3. FDA Ship-holds
The United States is Olympus largest market, and approximately ¥9B / quarter of inventory is stuck in compliance purgatory.
In the last earnings call, management noted that about 70% of these holds have already passed safety evaluations and are in the process of returning to market. They are also confident that the majority of the remaining gross margin pressure is expected to be resolved in Q4.
I believe they might be a little too optimistic here, but anyhow I’m estimating ¥9B / quarter of revenue loss, or ¥36B annualised of inventory.
Estimating an historical gross Margin of 40%, then the annualised impact to the bottom line would be ¥14.4B. I’m going to round it down to ¥12B, to account for the fact that some of the sales are lost to competitors.
Based on this, I am estimating the normalised owner earnings as follows:
Operating profit = ¥81B (new guidance mid point)
Depreciation / Amortisation = + ¥67B (assuming same d&a as past year)
Elevate Wind-Down = + ¥10B
FDA Ship-Hold Recovery = + ¥12B
Run-Rate Savings = + ¥24B
Normalized OCF = ¥194B
Capex = - ¥87B (assuming all Capex as maintenance capex)
Normalised Owner Earnings = ¥107B
At the current market cap, we get a multiple of 16.26x Price-To-Owner-Earnings. In late 2022, right before the FDA troubles started, the stock was trading at a 27/28x Price-To-Owner-Earnings multiple. I think that is a fair valuation for a global MedTech with a 70% market share in an oligopoly industry, with a moat that is widening due to stricter FDA regulations. Similar MedTech pure plays with a wide market share, like Stryker or Intuitive Surgical, float at a P/FCF between 30x and 60x, however we need to account for a Japanese discount here. I’m assigning it a more conservative 24x multiple as the competitors might have been able to take some market share due to the regulatory troubles.
Intrinsic value per share:
(107 \* 24) / 1.107 billion shares = ¥2319
Margin of safety:
(2319 - 1568) / 2319 = 0.32
At the current price, we have a 32% margin of safety, without even accounting for any growth or any future improvements to the margins.
Global demand drives 5% annual growth of endoscopy-enabled care, a consequence of aging population, broadening access to healthcare in underserved geographies, rising colorectal cancer awareness, and higher rates of colorectal cancers in young adults.
Many doctors are now recommending screenings even for patients in their 20s or 30s.
Future catalysts
Once the FDA troubles are over and the restructuring is complete, management will be able to use the newfound cash flow for growth CapEx. I think management will want to near-shore or US-shore the production of the devices meant for the US market, in order to bypass tariffs, but that will require multiple years of CapEx that will depress earnings, as well as multiple FDA approvals.
They’re also pushing their AI-based solution to identify colon cancer polyps, OLYSENSE, aiming to integrate it into their global installed base with a target of 5% by FY28 and 25% by FY31.
Management has also claimed the following: “Our ambitious goal is to connect 40,000 of our globally installed base of GI image processors by the end of the decade”.
Although they haven’t released pricing models for it yet, a subscription based model could become a requirement for insurance companies to avoid malpractice claims.
Assuming an extremely conservative $5000/year OLYSENSE subscription, priced to drive adoption, reaching their 2031 target would add $200M / year of high margins software revenue, and the stock might also rerate to an higher multiple to reflect their newfound SaaS status.