Global Pricing Pressures Will Erode Margins Despite Cost Cuts

Key Takeaways

• Intensifying global cost controls and market shifts toward point-of-care testing are compressing DiaSorin's pricing power, margins, and weakening its traditional product demand.
  
• Heightened regulatory and compliance pressures, along with currency and macro volatility, are threatening innovation cycles and adding instability to international earnings.
  
• Emphasis on specialty diagnostics, operational efficiency, and R&D-driven innovation underpins resilience, margin improvements, and long-term growth despite regional and market pressures.

Catalysts

Engages in research and development, manufacture, and distribution of immunodiagnostics and molecular diagnostics testing kits in Europe, North America, and internationally.

• Escalating global healthcare cost containment initiatives, such as VBP and DRG reforms in China, are already contributing to double-digit revenue declines in that region and set a precedent for other markets to drive aggressive price reductions, ultimately suppressing overall revenue growth and severely limiting pricing power worldwide for DiaSorin.
  
• Intensifying regulatory scrutiny and evolving data privacy requirements, especially in genomics and diagnostics, threaten to meaningfully increase compliance costs, delay innovation cycles, and slow the launch of new assays, thereby eroding both operating efficiency and profit margins over the medium to long term.
  
• The growing momentum toward point-of-care testing and decentralized diagnostics risks structurally reducing demand for traditional centralized immunodiagnostic instruments like LIAISON, exposing DiaSorin's high installed base to gradual obsolescence and driving revenue and gross margin deterioration as market share shifts to more agile competitors.
  
• Increasing commoditization of reagent kits and market saturation-combined with customer consolidation and heightened purchasing power among laboratory giants-will further squeeze average selling prices and compress net profitability, undermining the specialty positioning that has historically supported DiaSorin's earnings.
  
• Persistent currency headwinds and macroeconomic volatility, amplified by exposure to emerging market FX risk and sustained weakness in primary export markets, could continually dampen international revenue contributions and cause ongoing net earnings volatility, destabilizing reported financial results and investor expectations.

DiaSorin Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on DiaSorin compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming DiaSorin's revenue will grow by 5.0% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from 15.8% today to 19.0% in 3 years time.
• The bearish analysts expect earnings to reach €266.8 million (and earnings per share of €4.78) by about August 2028, up from €191.5 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 21.7x on those 2028 earnings, down from 24.3x today. This future PE is greater than the current PE for the GB Medical Equipment industry at 19.7x.
• Analysts expect the number of shares outstanding to grow by 1.18% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 10.59%, as per the Simply Wall St company report.

DiaSorin Future Earnings Per Share Growth

Risks

• Strong and consistent growth in core business segments, especially immunodiagnostics and molecular diagnostics, with recurring high single-digit revenue increases in both mature and emerging markets, suggests resilience in topline performance and could drive long-term revenue expansion.
  
• Expansion of product menus and specialty assays, such as unique panels (e.g., QuantiFERON TB, Candida Auris, MeMed BV) and successful market penetration (notably in U.S. hospitals and commercial labs), supports differentiated offerings and potential pricing power, which can bolster gross margin and earnings.
  
• Ongoing operational efficiency initiatives, including consolidation of manufacturing sites and investments in automation, are expected to deliver substantial cost savings and margin improvements over time, directly enhancing net margins and EBITDA.
  
• Strategic adaptation to changing market dynamics-such as focusing on specialty products in pressure markets like China and rapid approvals for new panels in high-growth regions-enables DiaSorin to mitigate adverse trends and maintain or grow revenues despite regional headwinds.
  
• Robust investment in R&D and a demonstrated track record of launching innovative platforms (e.g., LIAISON PLEX, NES) and menu expansion create long-term growth drivers that can capture secular healthcare trends, sustaining both revenue and profit growth into the future.

Valuation

• The assumed bearish price target for DiaSorin is €77.95, which represents two standard deviations below the consensus price target of €103.82. This valuation is based on what can be assumed as the expectations of DiaSorin's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of €122.0, and the most bearish reporting a price target of just €75.4.
  
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be €1.4 billion, earnings will come to €266.8 million, and it would be trading on a PE ratio of 21.7x, assuming you use a discount rate of 10.6%.
  
• Given the current share price of €86.18, the bearish analyst price target of €77.95 is 10.6% lower. Despite analysts expecting the underlying buisness to improve, they seem to believe the market's expectations are too high.
  
• 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.