Genomics England Partnership And T-SPOT Automation Will Drive Diagnostics Leadership

Key Takeaways

• Strategic partnerships and innovations in genomics and diagnostics position Revvity for strong revenue growth and leadership in these segments.
  
• Operational agility and strategic share repurchases are expected to sustain net margins and enhance earnings per share.
  
• Geopolitical developments and academic spending uncertainties threaten revenue growth and earnings stability, while reliance on specific segments creates additional execution risk.

Catalysts

Provides health sciences solutions, technologies, and services worldwide.

• Revvity’s strategic partnership with Genomics England on newborn genomic sequencing positions it as a leader in this growing field, driving future revenue growth in the diagnostics segment.
  
• The automation of the T-SPOT latent TB test for the U.S. market, where over half of latent TB tests are conducted, anticipates increased demand and revenue growth from its diagnostics franchise.
  
• The robustness in the Signals software business, with 20%+ organic growth expected in Q2 and the introduction of new products, signals strong future revenue and margin expansion through high-margin offerings.
  
• The company’s proactive mitigation of tariff impacts through supply chain adjustments and operational agility should help in maintaining net margins despite external pressures.
  
• Continued strategic share repurchases will reduce the share count, thereby positively influencing earnings per share over the long term.

Revvity Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Revvity's revenue will grow by 6.0% annually over the next 3 years.
• Analysts assume that profit margins will increase from 10.7% today to 15.8% in 3 years time.
• Analysts expect earnings to reach $522.2 million (and earnings per share of $4.52) by about April 2028, up from $296.0 million today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as $411 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 33.2x on those 2028 earnings, down from 38.4x today. This future PE is lower than the current PE for the US Life Sciences industry at 37.8x.
• Analysts expect the number of shares outstanding to decline by 2.56% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.35%, as per the Simply Wall St company report.

Revvity Future Earnings Per Share Growth

Risks

• Unforeseen choppiness in demand from U.S. academic customers, particularly affecting life science instruments, could lead to reduced revenue growth expectations.
  
• Increasing macroeconomic volatility and geopolitical developments could impact Revvity's ability to maintain predicted revenue and earnings growth.
  
• Changes in U.S. academic spending due to uncertain future funding levels could negatively affect revenues, particularly in instrumentation and consumables markets.
  
• The evolving tariff situation presents risks, and despite mitigation efforts, may continue to impact operating margins, potentially affecting net margins if further unmitigable effects arise.
  
• Dependence on continued growth in certain segments, like Signals software, to offset weaknesses elsewhere may introduce execution risk, affecting overall earnings stability and growth projections.

Valuation

• The analysts have a consensus price target of $126.102 for Revvity 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 $162.0, and the most bearish reporting a price target of just $100.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $3.3 billion, earnings will come to $522.2 million, and it would be trading on a PE ratio of 33.2x, assuming you use a discount rate of 7.4%.
  
• Given the current share price of $94.66, the analyst price target of $126.1 is 24.9% 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.