SUVPF - Sartorius AG: It's A Good Long-Term Play But 'Wait And See' Approach Is More Conservative Now

2024-05-27 07:38:31 ET

Summary

• Sartorius AG is facing a temporary setback due to a decline in demand for its products from biopharmaceutical companies.
• Order intake and book-to-bill ratio suggest a potential recovery in demand, but the strength of the recovery is uncertain.
• The stock has experienced high volatility and is currently considered expensive compared to its peers.
• Given its solid competitive advantages, I rate the stock as a hold, following up on its performance in the next quarters.

I rate Sartorius AG [ETR:STR] as a hold as I see that the company is facing a temporary setback that started in 2022 when most of its clients, biopharmaceutical companies, were reducing the demand for its products as COVID-19 was receding. In this sense, these clients started using their respective inventories and demanding fewer new products from Sartorius, which caused the company to experience a demand slowdown since the second half of 2022. This situation is not associated with Sartorius specifically but with the entire industry, as competitors like Danaher (DHR) and Thermo Fisher (TMO) are experiencing the same pattern. Nevertheless, there are two important metrics, such as order intake and the book-to-bill ratio, that seem to indicate that the negative trend of the demand experienced in the last 2 years might be changing this year, which indicates that the stock is not a sell despite the bad performance of the stock since 2022; the problem is to be sure if that recovery will be strong enough or more gradual; that explains my "hold" rating. I am holding Sartorius stock in my portfolio, so I will mention my strategy later. If you want to understand better the Sartorius' business model and its strong competitive advantages, you might read my article written in July 2023; in that article, my rating was a buy as I expected a stronger recovery in 2024.

Context

Following the trend of the last quarters, Sartorius experienced a decline in revenue of 9.3% in March 2024 YoY, explained by the decline of sales in EMEA with -4.9% YoY, Americas with -10.5% YoY, and Asia Pacific with -14.5% YoY. As a result of the slowdown in demand for Sartorius's products, net income declined by 60% YoY in the same period....

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