NEW YORK – Investment bank Barclays has downgraded the stock of Waters from Equal Weight to Underweight and cut its price target on the shares.
In a note to investors today, Barclays analyst Jack Meehan wrote, "As leading indicators of the macro environment continue to weaken, we see risk to the outlook for Waters' Industrial sales exposure (31 percent of sales)." He also cited Waters exposure to the pharma end market, and in particular the firm's "outsized exposure to small molecule applications, where generic consolidation has led investment to lag relative to large molecule applications."
Meehan expects Waters' multiple to lag peers given these concerns.
He also cut his price target on Waters' stock to $195 from a previous $210.
Meehan released the note in advance of firms reporting third quarter financial results. He said that he continues to view the life sciences tools and diagnostics sector "as a relative safe haven for the foreseeable future, adding "we continue to see durable drivers of growth across biopharma (especially in large molecule), academia and healthcare."
Meehan noted that Thermo Fisher Scientific remains the bank's top pick in the life science tools and diagnostics sector. "Overall, we believe Thermo Fisher's enterprise strategy is resonating — allowing the company to aggregate share amidst healthy end markets."
Among the positives he cited for the firm are that 75 percent of its sales are recurring, it has scale and portfolio breadth in China to take advantage of life science initiatives there, and "with leverage <3x, we believe Thermo Fisher is poised to flex its deal-making prowess amidst market uncertainty and a favorable financing environment."
In Wednesday morning trade on the New York Stock Exchange, shares of Waters were down a fraction of 1 percent at $207.69, while shares of Thermo Fisher were up around 2 percent at $277.02.