SomaLogic Merger And Illumina Partnership Will Unlock New Proteomics Opportunities

Key Takeaways

• Strategic mergers and partnerships, along with cost synergies, aim to improve profitability and net margins significantly.
  
• Product integration in proteomics and genomics taps into a large market, while a focus on consumables enhances recurring revenue growth.
  
• Challenges in revenue growth, macroeconomic uncertainties, and risks associated with mergers and tariffs could impact Standard BioTools' financial stability and operational efficiency.

Catalysts

Provides instruments, consumables, reagents, and software services for researchers and clinical laboratories in the Americas, Europe, the Middle East, Africa, and the Asia pacific.

• The merger with SomaLogic, along with the successful operationalization of $80 million in cost synergies ahead of schedule and an additional $10 million in cost reductions this year, positions Standard BioTools to improve its net margins and profitability.
  
• The partnership with Illumina and upcoming launch of products integrating proteomics with genomics technology creates a significant opportunity to expand revenue streams, tapping into an expansive billion-dollar market potential in proteomics.
  
• An anticipated focus on higher-margin consumables is expected to boost overall profitability and contribute to a shift in product mix, potentially driving net margin improvements.
  
• The strong balance sheet with nearly $300 million in cash provides the capability for strategic acquisitions, supporting long-term revenue growth and market expansion.
  
• Efforts to diversify and expand the customer base, particularly beyond the top 5 customers in the Lab Services sector, along with a focus on increasing consumable sales, is expected to drive consistent, recurring revenue growth.

Standard BioTools Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Standard BioTools's revenue will decrease by 20.9% annually over the next 3 years.
• Analysts are not forecasting that Standard BioTools will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate Standard BioTools's profit margin will increase from -80.2% to the average US Life Sciences industry of 14.2% in 3 years.
• If Standard BioTools's profit margin were to converge on the industry average, you could expect earnings to reach $12.1 million (and earnings per share of $0.03) by about September 2028, up from $-138.1 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 74.6x on those 2028 earnings, up from -3.6x today. This future PE is greater than the current PE for the US Life Sciences industry at 29.1x.
• Analysts expect the number of shares outstanding to grow by 2.62% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.26%, as per the Simply Wall St company report.

Standard BioTools Future Earnings Per Share Growth

Risks

• The company experienced a 9% year-over-year decline in revenue for the fourth quarter and full year 2024, indicating challenges in maintaining or growing current revenue levels.
  
• Macroeconomic uncertainties, including potential reductions in NIH funding and cautious spending in academia, are likely to impact revenue, particularly affecting capital equipment purchases in the U.S.
  
• The company is projecting a 3% decline in organic revenue for 2025 at the midpoint of their range, which suggests they are not anticipating substantial growth in the near term.
  
• The combination of mergers and acquisitions carries risks, including execution risk, integration challenges, and potential overestimation of cost synergies, which could affect net margins and operational efficiencies.
  
• The tariff environment adds complexity and potential costs, which could affect gross margins and adjusted EBITDA if new tariffs are absorbed or influence customer demand negatively.

Valuation

• The analysts have a consensus price target of $1.775 for Standard BioTools 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 $2.0, and the most bearish reporting a price target of just $1.55.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $85.2 million, earnings will come to $12.1 million, and it would be trading on a PE ratio of 74.6x, assuming you use a discount rate of 7.3%.
• Given the current share price of $1.29, the analyst price target of $1.78 is 27.3% 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.