Expansion Into South Korea And FDA Approval To Support Future High-Value Medical Device Production

Key Takeaways

• Expansion into South Korea and FDA approval in Malaysia bolster Tecan's production and revenue growth potential in medical devices.
  
• Innovations in genomics and proteomics could drive demand and revenue as new technologies gain market traction.
  
• Declining demand and revenue from key markets and segments, combined with increased costs and currency issues, are affecting profitability and margins.

Catalysts

Engages in the provision of laboratory instruments and solutions in biopharmaceuticals, forensics, and clinical diagnostics.

• Tecan is expanding its global commercial presence with a new sales office in South Korea and received FDA inspection approval for its manufacturing facility in Malaysia, which should support future production of high-value medical devices, impacting future revenue growth positively.
  
• The company's focus on innovation, such as launching a multiomics liquid handling workstation and advancing genomics and proteomics products, may drive increased demand and revenue as these advanced technologies gain adoption.
  
• Cost reduction programs and site consolidations are expected to enhance operational resilience and efficiency, thereby improving net margins by reducing operational costs.
  
• Tecan's strategy to take advantage of growth opportunities in the clinical and genomic testing segments, including new product launches and the replacement of legacy automation platforms, is likely to increase revenue in these high-growth areas.
  
• Forecasted recovery of demand in biopharma and increased interest in laboratory automation supported by AI and advanced data analytics could lead to increased revenue and potentially better margins as Tecan captures more sophisticated market demands.

Tecan Group Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Tecan Group's revenue will grow by 6.4% annually over the next 3 years.
• Analysts assume that profit margins will increase from 7.2% today to 12.0% in 3 years time.
• Analysts expect earnings to reach CHF 135.3 million (and earnings per share of CHF 10.3) by about March 2028, up from CHF 67.7 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting CHF178.5 million in earnings, and the most bearish expecting CHF117 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 25.4x on those 2028 earnings, down from 33.1x today. This future PE is lower than the current PE for the GB Life Sciences industry at 34.1x.
• Analysts expect the number of shares outstanding to decline by 0.49% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 4.57%, as per the Simply Wall St company report.

Tecan Group Future Earnings Per Share Growth

Risks

• Reduced CapEx spending in the biopharmaceutical industry and among U.S. government and academic customers has led to decreased demand for life science instruments, impacting revenue.
  
• Market weakness in China and slow implementation of stimulus programs have resulted in lower-than-expected revenue bookings, negatively affecting overall earnings.
  
• Changes in ordering patterns and reduced orders from OEM customers in the Partnering business segment have led to decreased sales and affected revenue.
  
• The significant decline in revenue from the largest OEM account, due to inventory normalization and model transition, has impacted profitability and earnings.
  
• Increased depreciation costs, restructuring expenses, and adverse foreign exchange rates have collectively led to a decrease in gross profit margin, affecting net margins.

Valuation

• The analysts have a consensus price target of CHF250.5 for Tecan Group based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of CHF384.0, and the most bearish reporting a price target of just CHF214.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be CHF1.1 billion, earnings will come to CHF135.3 million, and it would be trading on a PE ratio of 25.4x, assuming you use a discount rate of 4.6%.
• Given the current share price of CHF175.9, the analyst price target of CHF250.5 is 29.8% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.