GH - Bernstein bullish on Thermo Revvity Guardant PacBio; bearish on Illumina

2023-10-01 16:02:12 ET

Bernstein is bullish on medtech stocks Thermo Fisher, Guardant Health, Revvity and PacBio, but sees further downside for Illumina, according to a new industry note.

The investment firm kicked off coverage of the US life science tools and diagnostics sector last week, asserting that the sub-sector had “vastly” outperformed the broader market despite some rockiness over the last few quarters.

Bernstein attributed the recent weakness in part to such factors as post-COVID inventory de-stocking, economic problems in China and “cautiousness” in biopharma spending. But it also said that a correction was somewhat expected given past performance.

“In reality, for an industry that talks about approximately 4% to 6% long-term core organic growth, we’ve been above that for years, so some correction/reversion to the mean isn’t surprising,” Bernstein analysts wrote in their note dated Sept. 27.

The good news, Bernstein said, is that the long-term demand drivers for the sub-sector “are still very much in place” and that the “shake-up” created an opportunity for investors to buy long-term “winners” at an attractive entry point and “take advantage of short-term dynamics depressing share price.”

Topping Bernstein’s outperform list for diversified toolmakers were Thermo Fisher ( NYSE: TMO ) and Revvity ( RVTY ). The bank set Thermo’s price target at $603 and Revvity’s at $133.

Meanwhile, Bernstein rated Avantor ( AVTR ) at market perform, commenting that despite high recurrent revenue and relatively low exposure to China, it believed investors “need time to get over recent stumbles” and that the stock’s multiple was “warranted.” Bernstein’s price target for the stock is $22.

Agilent ( A ) and Waters ( WAT ) were also rated market perform, with Bernstein asserting that it expects the slowdown in the demand for instruments to continue and that both companies have “limited upside from major strategic actions.” Bernstein set a price targets of $123 for Agilent and $280 for Waters.

As for next-generation genomic sequencing, Bernstein said it’s bullish on Pacific Biosciences ( NASDAQ: PACB ) but bearish on sub-sector giant Illumina ( NASDAQ: ILMN ), due in part to a shift from short-read sequencing by synthesis, or SBS, which Illumina dominates, to a “more competitive landscape” that includes technologies such as long-read sequencing.

In the case of Illumina, Bernstein asserted that its “monopoly” was under attack, making it the relative “loser” in the space. Bernstein rated Illumina at underperform, despite a “huge collapse” of its share price. “We think there is further downside,” Bernstein added, setting Illumina’s price target at $111.

Meanwhile, Bernstein said it viewed PacBio as the relative “winner,” stating that PacBio’s pipeline was set up to grab market share in both the long and short-read categories. “PacBio is at a huge point of inflection in growth,” the investment bank added. Bernstein rated PacBio outperform, with a price target of $11.

Guardant Health ( NASDAQ: GH ) was Bernstein’s top pick in the molecular diagnostics space, with the bank rating it outperform with a price target of $34. Citing Guardant’s “first-mover advantage,” Bernstein sees the company delivering “superior growth.” Bernstein added that it viewed a recent pullback on the stock as a buying opportunity.

Bernstein was also bullish on Exact Sciences ( EXAS ), commenting that although the stock may appear pricey relative to peers, the “premium is justified” by the company’s lower downside risk and positive cash flow. Bernstein rated Exact Sciences at outperform, with a $83 price target.

Natera ( NTRA ), meanwhile, was labeled “exciting,” but still given a market perform rating as Bernstein believes that the company’s minimal residual disease, or MRD, product is “further away than the market appreciates.”

Bernstein warned investors, however, not to short Natera stock as the company’s 22q screening could represent a $600M market opportunity. The bank set its price target for the stock at $48.

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