MRVI - Maravai LifeSciences Holdings: Navigating The Covid Cliff

2023-05-15 15:05:44 ET

Summary

• Today, we take our first look at Maravai LifeSciences Holdings, Inc which was the subject of new takeover rumors last week.
• Both business segments of this nucleic acid production and biologics safety testing have seen sales fall drastically thanks to the end of the Covid pandemic.
• What is ahead for Maravai as the company adjusts to the Post-Covid world? An investment analysis follows in the paragraphs below.

Nothing is more frightening than a fear you cannot name ."? Cornelia Funke,

Today, we put Maravai LifeSciences Holdings, Inc ( MRVI ) in the spotlight for the very first time. The company was the target of speculated buyout interest yet again last week, although there has been more smoke than fire on this front. The rumors did move the shares up some eight percent on trading on Friday. It also put this nucleic acid production and biologics safety testing name on our radar. An analysis follows in the paragraphs below.

Company Overview:

Maravai LifeSciences Holdings, Inc. is based in San Diego, CA. The company produces a reliable supply of reagents in the fields of nucleic acid production and biologics safety testing. These are critical in the development of drug therapies, diagnostics and novel vaccines. In addition, the company also supplies enzymes and other diagnostics used to further research on human diseases. The company is split in two parts: Nucleic Acid Production and Biologics Safety Testing.

Currently, the stock trades just under $15.00 a share and sports an approximate market capitalization of $3.7 billion. Maravai saw its revenues surge during Covid19 outbreak. As the pandemic has ebbed, sales there have fallen off the cliff as they have across many companies serving this market.

First Quarter Results:

On May 8th, the company posted its first quarter numbers . Maravai had a non-GAAP profit of three cents a share, a penny under expectations. Revenues fell just over two thirds from the same period a year ago to $79 million, which was just slightly under expectations.

Both sides of the business are navigating the Covid Cliff, Nucleic Acid Production to a much higher degree, however. That business segment saw sales of $61.5 million during the first quarter. This is a 73% decrease from the same period a year ago as covid related sales fell some $157 million to just $15.9 million as demand from Covid19 vaccine manufacturers imploded.

Sales from Biologics Safety Testing were down ' only ' 15% in comparison to $17.6 million. Management stated the main causes of the decline were 'post-COVID inventory normalization by some customers and an ongoing slow return to work in China '.

Management provided conservative guidance for the 2023 fiscal year. It projects sales to come in at a range of $400 million to $440 million, the midpoint of which was approximately $10 million below existing analyst firm consensus at the time. Adjusted fully diluted EPS (non-GAAP) is expected to be in the range of $0.27 to $0.33 per share in FY2023, below 36 cent a share consensus.

Analyst Commentary & Balance Sheet:

Since first quarter results hit earlier this month, seven analyst firms including Jefferies and Stifel Nicolaus reiterated Buy/Outperform ratings on the stock. Albeit, most contained downward price target revisions. Price targets proffered ranged from $17 to $27 a share. Goldman Sachs downgraded MRVI to a Neutral from a Buy with a $13 price target. Bank of America reissued its Hold rating and $15 price target.

Goldman's analyst gave the following reasons for his downgrade, ' Maravai is being negatively impacted by a decline in COVID spending and slower growth in the biologics safety testing unit .' and ' the company's base nucleic acid business was done 10% year over year. '

Just over four percent of the outstanding float is currently held short. There has been no insider activity in this stock since late 2020. The company ended the first quarter with a little less than $630 million of cash and marketable securities on its balance against $537 million worth of debt. $70 million of that cash was used to purchase Alphazyme LLC from Dyadic International, Inc. ( DYAI ) in January of this year.

Verdict:

The current analysis consensus has Maravai LifeSciences Holdings making 30 cents a share even as revenues drop more than 50% to roughly $405 million in FY2023. They project revenue growth returning in the low teens in FY2024 and profits improving to 39 cents a share.

The company is serving some solidly growing industries. In hindsight, management should have accepted a $42 per share all-cash buyout offer that it received from Sartorius ( SARTF ) early in 2022. Of course, so many firms were flying high on ' Covid euphoria ' and few expected that source of revenue to come to an end so soon.

Outside a buyout, it is hard to get too excited about Maravai at these trading levels. 2023 will continue to see a sharp drop in sales even as the company stays profitable. Revenue growth should return in FY2024 in the low teens. However, the stock trades at approximately 50 times this fiscal year's projected earnings and nearly 40 times next year's forecasted profits. At some nine times this year's projected revenues, a price to sales valuation is hardly compelling either. Therefore, I would not chase the rally late last week on the latest takeover rumors.

What you choose also chooses you."? Kamand Kojouri

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