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Revvity Earnings: Rough Period of Volume Weakness Lingers and Recovery Likely Pushed Out to Mid-2024

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Healthcare Sector artwork
Securities In This Article
Revvity Inc
(RVTY)

Our $162 fair value estimate remains intact for narrow-moat Revvity RVTY, even as soft demand weighed on its third-quarter results and near-term outlook. Management again lowered full-year 2023 revenue and adjusted EPS forecasts on softer spending by biopharmaceutical clients that will likely persist through the first half of 2024. The moderate updates we made to our full-year 2023 revenue growth assumptions, in line with updated guidance and reflecting recent headwinds, were roughly offset by cash flows generated since our last valuation update, though, resulting in our unchanged valuation. With shares down over 15% on these weak results and guidance, we continue to highlight Revvity as significantly undervalued and continue to view the firm’s long-term outlook as strong, despite its weak near-term prospects.

Third-quarter results showed the impact of weaker demand from biopharmaceutical clients on revenue growth. In the life sciences business in particular, this drag on revenue was only partially offset by slightly increased demand from government and academic clients, leading to a 2% decline year over year. The diagnostics business improved sequentially with the immunodiagnostics business especially in China providing a decent tailwind but was down 9% year over year including COVID-19 and other biopharmaceutical-related headwinds. The lower overall volume as well as product mix pushed third-quarter profitability down, although pricing and cost initiatives helped fend off both these factors and macroeconomic headwinds somewhat.

We view management’s plan to further trim costs as necessary to insulate against continued revenue declines in the near term. The eventual recovery in demand for the firm’s life sciences tools should also support profitability gains in the intermediate term, as near-term uncertainty wanes. Robust growth in the immunodiagnostics and reproductive health businesses should continue driving fundamental growth over the longer term, too.

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 Authors

Ava Gams

Associate Equity Analyst
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Ava Gams is a former associate equity analyst, AM Healthcare, for Morningstar*. She was responsible for supporting the coverage of medical toolmakers and diagnostics companies, and contract research organizations. She also contributed to research, reports, and presentations regarding healthcare sector trends.

Previously, she was an associate equity analyst, ESG, and analyzed the materiality of key ESG risks at a company and industry level, while also supporting coverage of cannabis companies, payroll processors, and Internet registries. Prior to her experience in equity research, Gams worked as a financial product specialist for Morningstar Office focusing on data reconciliation, portfolio performance metrics, and billing.

Gams holds a bachelor's degree in economics from the University of Michigan.

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

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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