Tariff Mitigation And Adaptation Will Unlock Life Sciences Potential

Key Takeaways

• U.S. funding uncertainties and Chinese competition are constraining revenue prospects, notably in the Life Sciences segment.
  
• Tariff pressures and geopolitical tensions are impacting margins and growth, affecting overall earnings potential adversely.
  
• Academic funding uncertainties and political tensions could negatively impact Revvity's revenue and margins, particularly in the Life Science Solutions segment.

Catalysts

Provides health sciences solutions, technologies, and services worldwide.

• The Life Sciences segment is experiencing a slowdown in demand from U.S. academic customers due to uncertainties in funding, which could negatively impact revenue growth projections.
  
• The ongoing tariff situation is creating pressure on operating margins, projected to negatively impact adjusted operating margins by approximately 60 basis points this year due to tariffs alone.
  
• There is a notable pressure on instrumentation sales within Life Sciences due to subdued demand, leading to a less optimistic outlook on revenue growth from this sub-segment.
  
• Revvity is facing competition in the Chinese market, and the geopolitical tensions between the U.S. and China could further limit expansion opportunities and affect revenue and growth prospects.
  
• The company expects a decrease in adjusted earnings per share by approximately 12 cents due to tariff-related issues, indicating potential headwinds to earnings if mitigation strategies do not fully offset the impact.

Revvity Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on Revvity compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Revvity's revenue will grow by 5.8% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from 10.7% today to 13.8% in 3 years time.
• The bearish analysts expect earnings to reach $452.5 million (and earnings per share of $4.36) by about July 2028, up from $296.0 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 27.9x on those 2028 earnings, down from 39.6x today. This future PE is lower than the current PE for the US Life Sciences industry at 36.0x.
• Analysts expect the number of shares outstanding to decline by 4.43% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.39%, as per the Simply Wall St company report.

Revvity Future Earnings Per Share Growth

Risks

• Academic funding uncertainties in the U.S. are causing customers to reduce spending on both instrumentation and consumables, potentially impacting revenue from academic sources.
  
• The tariff situation, particularly the $135 million gross impact from U.S. to China and Europe to U.S., could negatively affect adjusted operating margins by approximately 60 basis points this year despite mitigation efforts, thereby impacting net margins.
  
• The sector continues to face pressure from softer spending by pharma customers, which can impact overall top line growth, especially for the Life Science Solutions segment, affecting both revenue and earnings.
  
• Instrumentation sales are pressured due to recent academic uncertainties, with potential declines impacting revenue growth projections for the Life Science Solutions business.
  
• The evolving political and trade tensions with China could pose risks to Revvity's operations and revenue, especially within the Life Science Solutions segment, due to supply chain dependencies.

Valuation

• The assumed bearish price target for Revvity is $100.0, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Revvity'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 $169.11, and the most bearish reporting a price target of just $100.0.
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be $3.3 billion, earnings will come to $452.5 million, and it would be trading on a PE ratio of 27.9x, assuming you use a discount rate of 7.4%.
• Given the current share price of $99.45, the bearish analyst price target of $100.0 is 0.6% higher. The relatively low difference between the current share price and the analyst bearish price target indicates that they believe on average, the company is fairly priced.
• 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.