One Firm Sees Up to 45% Upside in Top Companies in Life Sciences Tools

Print Email

Investing in the life sciences tool sector can be tricky, but according to the financial services firm Janney, the investing gain will be a result of finding the right secular trend in its own sector that comes from exposure to the production of biological therapeutics. Janney sees significant upside in large caps in the bioproduction, and it has released several key picks with mostly outsize upside that already come with buy ratings.

Janney has noted that the Food and Drug Administration (FDA) approvals continue to be a positive secular trend in the Large Cap Life Science Tool Space. In 2018, the FDA’s new molecular entity approvals reached an all-time high of 59 — up from 46 approvals in 2017 and 22 approvals in 2016. Of those 59 approvals last year, 17 were biologics.

There is a differing range of positives given from Janney’s top picks featured in the life sciences tools arena. Even with buy ratings on all, one is barely called to have upside at all — and one was given an implied upside of 45%.

As a reminder, traditional buy and outperform analyst ratings at this stage in the 10-year-old bull market come with an implied upside of 8% to 10% for companies with Dow or S&P 500 status. Here are four life sciences tools stocks that Janney is touting to its clients:

Agilent Technologies, Inc. (NYSE: A) comes with a buy rating and a $90 fair value for the shares. If Janney is correct, that represents 28% upside from the prior $70.29 close. While Janney acknowledged Agilent’s earnings miss and grant that it has overexposure to the industrial end market, the firm sees a potential long-term organic growth of 5%.

Investors are going to get roughly 19 times 2020 EBITDA per share and less than 18 times for 2021 in the call. Janney’s report said:

While Agilent is overweight in industrial end-market exposure, management has highlighted a main focus of capital deployment to be on acquisitions with a focus on cell analysis/engineering, genomics, consumables, and informatics. The focus on Healthcare/Biotech will gradually shift Agilent’s end market mix to match that of peers and continue its above-average organic growth. Currently, Agilent has about a 10% exposure to Biopharma through its Cell Analysis, Nucleic Acid Solutions Division and CrossLab business.

Janney’s $90 target on Agilent is higher than the Refinitiv consensus analyst target price of $83.69.

Avantor Inc. (NYSE: AVTR) was given new coverage a week earlier with a buy rating and some 45% implied upside to Janney’s target. It is said to have unique exposure to bioproduction and the company’s main business is lab-ware distribution for Pharma and Industrials that came from a 2017 acquisition. Avantor’s legacy J.T Baker-branded chemicals and single-use technologies are also integral across 30 points within end-to-end bioprocessing; Avantor counts 10 of the top 10 global biotechs as customers; and its direct materials are said to be present in 17 of the top 20 marketed large-molecule biologic drugs.

Janney has a $27 target as a fair value for Avantor. Avantor, whose IPO is this year, is a new company for investors.

Danaher Corporation (NYSE: DHR) has a fair value target of $174 at Janney, with implies, if correct, close to a 25% upside. The $21.4 billion purchase of GE Life Sciences transformed the company from a fourth-place player in bioproduction to the market leader among large-cap tool providers.

Janney sees the GE Life Sciences assets contributing about $3.5 billion in Fiscal Year 2020 revenues and views the company’s transformative acquisition helping it reach 6% organic growth rather than the 4% expected before this deal. It is also projected to have the largest customer list of any of its peers.

Danaher’s current share price of $140 is closer to the $144.33 consensus analyst target price than it is to Janney’s $174 target — and investors may want to consider that Janney also holds the Street-high target price here.

Thermo Fisher Scientific Inc. (NYSE: TMO) also has a buy rating at Janney, and its $290 fair value is very close to the prior closing price of $285.93. That means that a price-target hike needs to come soon or that the firm will need to do a valuation downgrade. Thermo Fisher also has a consensus analyst target price of $296.63 according to Refinitiv.

Thermo Fisher is considered the Amazon of life sciences tools, and Janney sees it as a core holding with organic growth of 5%.

I'm interested in the Newsletter