Morningstar

Eurofins Scientific Earnings: Maintaining Fair Value Estimate as COVID-19-Related Declines Absorbed

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Securities In This Article
Eurofins Scientific SE
(ERF)

Narrow-moat Eurofins ERF posted solid first-quarter results with strong revenue growth despite the loss of COVID-19-related sales. Macroeconomic pressures across the industry may favor the firm once the dust settles, particularly in food, feed, and environmental testing, where it holds the market lead. We are maintaining our fair value estimate of $80 per share.

Revenue declined by 10.5% year over year due to the loss of revenue from COVID-19 reagents and testing. Excluding COVID-19-related sales, revenue grew by 7%. Management expressed optimism toward increased awareness around PFAS (per- and polyfluorinated substances), a non-stick material used in products like cookware, packaging, and clothing, now increasingly linked to toxicity. As the market leader in food and environmental testing, we believe the firm has a developmental lead in this area, though competitors may catch up before testing mandates become more robust.

On the cost side, the industry felt continued pressure from inflation around labor and supply inputs. The silver lining is that the current economic environment has made the industry more favorable for consolidation. Smaller laboratories with thinner margins are struggling to raise prices enough to keep up with higher costs. This is largely due to the nature of pre-negotiated contracts in the industry. In addition, the continued war in Ukraine has slowed food production and reduced testing volume across labs in Europe. With Eurofins’ five-year goal to complete its hub and spoke testing network, we’d expect to see increased M&A activity in the coming years.

The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.

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About the Author

Julie Utterback, CFA

Senior Equity Analyst
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Julie Utterback, CFA, is a senior equity analyst, AM Healthcare, for Morningstar*. She focuses on medical technology and service companies. She covers managed care organizations including UnitedHealth, service providers like HCA, medical suppliers such as Baxter, and life sciences companies like Danaher. She is also the chairperson of the equity research team’s capital allocation methodology.

Before joining Morningstar in 2005, Utterback was an equity analyst at State Farm Insurance for several years. Utterback joined Morningstar in 2005 as an equity analyst in the healthcare industry, and initially she primarily covered medical technology companies, including orthopedic device, medical equipment, and cardiac device firms. In 2010, she joined Morningstar's credit research team, initiating coverage of the entire healthcare industry and generally helping the organization expand and maintain its credit coverage across many industries. She held that senior credit analyst role until April 2019, when she returned to the equity team to cover medical technology and service companies.

Utterback holds a bachelor's degree in finance from the University of Illinois Urbana-Champaign’s Gies College of Business. She also holds the Chartered Financial Analyst® designation.

* Morningstar Research Services LLC (“Morningstar”) is a wholly owned subsidiary of Morningstar, Inc

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