NEW YORK – Wells Fargo this week initiated coverage of Revvity at an Equal Weight rating on its stock and a price target of $95.
Analyst Timothy Daley said in a note to investors that Revvity has growth potential in both its diagnostics and life science segments, including expansion in the Europe and Asia/Pacific life sciences markets. However, he said it may be too early to tell from key performance indicators how well the company is performing since its $2.45 billion divestiture of its applied, food, and enterprise services earlier this year, and he noted that the firm has increased its reliance post-divestment on the volatile pharma and biotech markets as well as on reproductive health markets that are challenged by low birth rates.
Daley noted that Revvity's revenues are nearly evenly split between its life sciences and diagnostics segments post-divestment, and he said the life science segment "has the potential to take [Revvity] to the valuation class of the traditional large, diversified life sciences tools group vs just a diagnostics-led tools company." The life sciences business is achieving high single-digit revenue growth but that may slow due to moderating growth in coming years, whereas the firm's non-COVID diagnostics business revenue growth has slowed to low single-digits but are expected to improve.
About three quarters of the company's product launches in 2023 are used in life science laboratories and the remaining quarter are used for clinical diagnostics, and Daley said he expects the life sciences business will launch more products and contribute a rising portion of the company's revenue. He wrote that Revvity needs to show willingness to invest in R&D for offerings that meet the needs of pharma and biotech customers and academic and government customers.
Daley said more than 45 percent of Revvity's revenues likely come from the US and that concentration of revenue in one geographic region increases a company's vulnerability to risks such as cuts in biopharma and healthcare spending in the US.
Daley said that Revvity's reproductive health products, including non-invasive prenatal tests and newborn screening tests, accounted for about 35 percent of its diagnostic segment revenues in 2022. Though Revvity executives have noted in earnings calls the challenges presented by low birth rates in major geographic regions, Daley wrote that the company has room to expand with higher market penetration and product uptake, especially in China and other countries with large populations.
"We expect the firm's ability to expand product penetration with new NIPT and newborn screening products with an expanding testing menu to be the key to accelerate growth of the diagnostics segment," he said.
In morning trading on the New York Stock Exchange on Friday, Revvity's shares were up 3 percent at $108.90.