Bio-Rad Laboratories, Inc. BIO is well poised for growth in the coming quarters, backed by robust demand in the Life Science and Clinical Diagnostics arms. The company’s earnings and revenues for the second quarter of 2022 beat the Zacks Consensus Estimate. The continued strength across major geographic regions buoys optimism. A strong solvency position bodes well too. However, declining sales and tough competition are a concern.
In the past year, shares of this Zacks Rank #2 (Buy) company have dropped 35.3% against a 46.1% fall of the industry and a 6.7% decline of the S&P 500 composite.
The renowned manufacturer and global supplier of clinical diagnostics and life science research products has a market capitalization of $15.15 billion. In the past five years, the company registered earnings growth of 31.2%, way ahead of the industry’s 9.7% rise and the S&P 500’s 13.4% increase. The company’s earnings have surpassed estimates in the trailing four quarters, the average surprise being 46.8%.
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Let’s delve deeper.
Q2 Upsides: Bio-Rad exited the second quarter with better-than-expected earnings and revenues. On a currency-neutral basis, sales improved, reflecting an elevated level of demand, particularly in Asia, due to the ongoing outbreaks in China. Overall, demand for both Life Science and Clinical Diagnostics continued to be strong during localized surges of COVID-19. Within the Diagnostics business, the company witnessed recovery in its Immunohematology business. Expansion of gross margin is an added plus.
Focus on International Markets: In recent times, Bio-Rad has been deriving more than 60% of its net sales from international markets. Europe happens to be the largest international market for the company. In the second quarter, the company experienced currency-neutral year-over-year core revenue growth in the Americas and Europe. Life Science experienced currency-neutral year-over-year core revenue growth across all three regions. The diagnostics group’s year-over-year currency-neutral core revenue grew in the Americas and Europe.
Clinical Diagnostics Gains Momentum: We are encouraged by Bio-Rad’s second-quarter currency-neutral year-over-year sales increase in the Diagnostics business. The uptick was led by blood-typing and clinical immunology, coupled with a rebound in routine testing. In Aug 2022, Bio-Rad signed an agreement to acquire Poland-based Curiosity Diagnostics– a developer of innovative technology solutions for the medical diagnostic and healthcare markets. Curiosity Diagnostics is developing a sample-to-answer, rapid diagnostics PCR system for the molecular diagnostics market.
Strong Solvency: Bio-Rad exited the second quarter with cash and cash equivalents (including short-term investments) of $1.97 billion. Total debt (including current maturities) at the end of the reported quarter was $1.19 billion, lower than the quarter-end cash and cash equivalent and investments level, indicating strong solvency. This is good news in terms of the solvency position of the company, at least during the year of economic downturn, implying that the company is holding sufficient cash for debt repayment.
Dull Sales Performance: In the second quarter, Bio-Rad’s Life Sciences and Clinical Diagnostics arms registered a 3.5% and 3.3% year-over-year decline in revenues, respectively. Geographically, core revenue in Asia declined due to the extended lockdowns in China that negatively impacted the diagnostics business.
Tough Competitive Pressure: Bio-Rad operates in a highly competitive environment dominated by firms varying from large multinational corporations to start-ups. Also, the competitive and regulatory conditions in the markets where the company operates limit its ability to switch to strategies like price increases and other drivers of cost increases.
Bio-Rad has been witnessing a positive estimate revision trend for 2022. The Zacks Consensus Estimate for Bio-Rad’s 2022 earnings is pegged at $14.35, suggesting a 1.1% rise from the year-ago reported number.
The Zacks Consensus Estimate for its 2022 revenues is pinned at $2.85 billion, indicating a 2.5% fall from the year-ago reported number.
Other Key Picks
Other top-ranked stocks in the broader medical space that investors can consider are AMN Healthcare Services, Inc. AMN, Patterson Companies, Inc. PDCO and McKesson Corporation MCK.
AMN Healthcare has a long-term earnings growth rate of 3.2%. The company surpassed earnings estimates in the trailing four quarters, delivering a surprise of 15.7%, on average. It currently flaunts a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
AMN Healthcare has outperformed its industry in the past year. AMN has lost 5.6% against the industry’s 31.6% fall.
Patterson Companies has an estimated long-term growth rate of 7.9%. The company’s earnings surpassed estimates in all the trailing four quarters, the average beat being 16.5%. It currently flaunts a Zacks Rank #2.
Patterson Companies has outperformed its industry in the past year. PDCO has lost 0.8% compared with the industry’s 7.6% fall in the past year.
McKesson has an estimated long-term growth rate of 9.9%. The company surpassed earnings estimates in the trailing three quarters and missed in one, delivering a surprise of 13%, on average. It currently carries a Zacks Rank #2.
McKesson has outperformed its industry in the past year. MCK has gained 82.5% against the industry’s 7.6% fall.
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