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UBS Initiates Coverage on QuidelOrtho, Waters, PerkinElmer, Hologic, Agilent Technologies

NEW YORK — UBS on Tuesday initiated coverage on several life science tools and diagnostic firms including QuidelOrtho, Waters, PerkinElmer, Hologic, and Agilent Technologies as part of an expansion of its coverage of the space, while it also updated its rating for Danaher.

UBS analyst Elizabeth Garcia issued a Sell rating for QuidelOrtho with a 12-month price target of $86. Shares of the San Diego-based diagnostic firm, which was formed earlier this year through the merger of Quidel and Ortho Clinical Diagnostics, were trading down $1.40 at $103.80 on the Nasdaq Wednesday morning.

According to Garcia, QuidelOrtho will face pressure on its post-merger margins into 2023 amid higher SG&A and R&D costs, as well as an expected decline in demand for high-margin COVID-19 revenues. Additionally, the company is likely to face significant revenue pressures from competitors in the rapid point-of-care and near-patient molecular testing fields, she wrote, and its revenue expectations for its Sofia immunoassays and Savanna PCR testing platform may prove too optimistic.

Garcia has given Waters' stock a Neutral rating with a 12-month price target of $349, versus its Wednesday morning price of $329.52 on the New York Stock Exchange. The company has had multiple quarters of momentum amid a turnaround effort under CEO Udit Batra, who joined the company in mid-2020, but this success is already largely appreciated by investors, she wrote.

UBS forecasts Milford, Massachusetts-based Waters to accelerate organic revenue growth to approximately 6 percent for the upcoming two years, virtually flat with Wall Street's 2022-2023 consensus and within a point of consensus for 2024.

UBS's coverage of PerkinElmer begins with a Buy rating and a 12-month price target of $160, versus a Wednesday morning stock price of $138.16 on the New York Stock Exchange.

Garcia sees PerkinElmer achieving strong revenue growth despite the expected drop in its COVID-19 testing revenues over the next year and a half. Notably, organic growth for PerkinElmer is expected to benefit from the various acquisitions the Waltham, Massachusetts-based company has made in recent years.

"Consensus expectations align with our view, however, the stock is still trading at a discount to life science tool peers … suggesting investors are not yet fully on board," she wrote.

Garcia initiated coverage of Hologic with a Neutral rating and a $73 per share price target, slightly above the $69.59 the Marlborough, Massachusetts-based company's stock was trading at on the Nasdaq Wednesday morning.

The placement rate of Hologic's Panther molecular diagnostic instruments has been strong during the COVID-19 pandemic, and the company is "poised to see its expanded installed base move into the non-COVID-19 portion of its testing menu as we shift to a more endemic COVID-19 world," Garcia wrote. However, it remains unclear how much testing will be "transitioned to a molecular method and who will capture share." At the same time, a resolution of the shortage of semiconductor chips required for Hologic's 3D imaging systems will be required to recoup stalled orders.

UBS initiated coverage of Agilent with a Buy rating and a $139, 12-month share target price, compared with the company's $120.74 stock price on the New York Stock Exchange Wednesday morning.

Garcia wrote that Agilent is viewed as an investment opportunity after it posted 7 percent organic growth in fiscal Q2 despite the recent COVID-19-related shutdown of its China facility and its low leverage level compared with peers.

"Through its build and buy strategy the company has built up to a sizeable pharma franchise and is poised to benefit from the opening up of the second train line in its [nucleic acids solutions division] franchise alongside continued growth from its collection of cell analysis assets," Garcia wrote. "These businesses are benefiting from structural growth drivers with numerous RNA therapies clinical trials underway." The Santa Clara, California-based firm could also benefit from its high-growth pathology and companion diagnostic operations.

Garcia assumed coverage of Danaher with a Buy rating and a price target of $297. Shares of the Washington, D.C.-based conglomerate were trading at $257.75 on the New York Stock Exchange Wednesday morning.

"Danaher has outperformed the life science tools and diagnostics universe over the past five years driven by its biologics production franchise that has seen significant uplift from COVID-19 vaccine production," Garcia wrote. While these COVID-19 revenues are expected to fall substantially going forward, Danaher's bioprocessing business should offset the decline.

At the same time, Danaher's Integrated DNA Technologies and Beckman Coulter businesses are expected to perform well, she added.