2023-03-26 04:38:45 ET
Summary
- Harvard Bioscience is seeing strong order growth for its improved product portfolio.
- Harvard Bioscience has strong expected earnings growth for 2023 and 2024.
- The stock is attractively valued and bouncing higher from multiple-year support levels.
Harvard Bioscience ( HBIO ) is experiencing strong demand for its improved product portfolio. The company is expected to grow earnings at a strong double-digit pace in 2023 and again in 2024. The valuation is attractive and the stock is bouncing higher from a multiple-year support level. All of this is a recipe for strong stock growth even in the face of a possible recession.
The stock doubled from about $4 to $8 from when my last article was written in 2018 to August 2021. However, the stock came back down to $3. The current valuation and expected growth has the potential to drive the stock for another good run. While I can't guarantee another doubling in price, that is a possibility for the stock over the next 3 years.
Company Background
Harvard Bioscience manufactures a variety of life science products for molecular and cellular technology. This includes: amino acid analyzers, peristaltic infusion pump products, syringes, electroporation and electrofusion instruments, spectrophotometers, and other products for molecular level testing/research and precision scientific measuring. HBIO also offers enterprise software to manage large data pools.
The company provides preclinical products for research, drug discovery and drug development services. This includes wearable or implantable telemetry systems to collect cardiovascular, respiratory, central nervous system, and metabolic data. HBIO also provides behavioral products, surgical products, and other instruments.
The price of many of the company's products and services tend to range from $1,000 to over $100,000 . In addition to manufacturing their own products, HBIO also distributes products from other manufacturers. These distributed products comprised 15% of total revenue in 2022.
Harvard Bioscience's customers are typically research scientists at pharmaceutical and biotech companies, universities, government labs, and hospitals. This includes major companies such as Amgen ( AMGN ), Pfizer ( PFE ), Johnson & Johnson ( JNJ ), Genentech ( RHHBY ), and AstraZeneca ( AZN ). It also includes major universities such as Harvard, Johns Hopkins, Cambridge, MIT, and Yale.
Harvard Bioscience's Growth Drivers
Ultimately, HBIO's growth is being driven by the demand for new and improved drugs/treatments for numerous health conditions. The global life science tools market is expected to grow at about 11% annually to 2030 . This would take the global market from being worth $144 billion in 2022 to about $331 billion in 2030.
The high prevalence of various diseases such as cancer, diabetes, kidney, and thyroid disorders is expected to drive this market. These conditions create an ongoing need for advanced therapeutics and novel medicine.
HBIO produces many tools and equipment that researchers need to help them develop and evaluate advanced therapeutics. The company also has products for monitoring patients for various conditions and data collection. HBIO is seeing demand increase for its products which includes new offerings.
HBIO received a large order from a large pharma company for its BTX Electroporation system. This is expected to generate $1 million in revenue per year for HBIO.
HBIO introduced the new U7500 Premium Spectrophotometer which began shipping in Q4 2022. This replaces older models and is designed to better attract CRO companies and top academic institutions.
The company also introduced its exclusive continuous glucose monitoring implant. This new implant allows for continuous glucose monitoring. This avoids the cost, variability, and inconvenience of periodic blood tests. The system began shipping in Q4 2022.
HBIO did some restructuring last year to improve operating effectiveness. This should help increase margins and profitability. The company is projected to achieve positive EPS of $0.25 for 2023 after experiencing an EPS loss of $0.23 in 2022. That is with expected revenue growth of about 5%. EPS is expected to grow at a strong pace of 56% in 2024 to $0.39.
Attractive Valuation
Harvard Bioscience is trading attractively below its competitors:
HBIO | Becton, Dickinson ( BDX ) | Danaher ( DHR ) | PerkinElmer ( PKI ) | Thermo Fisher Scientific ( TMO ) | Bio-Rad ( BIO ) | |
Forward PE | 13 | 19.7 | 24.8 | 25 | 23.5 | 29 |
source: SeekingAlpha
The table above shows that HBIO is trading significantly below its peers. The Medical Instruments industry as a whole is trading with a forward PE of 24.6. HBIO is trading 47% below its industry. This leaves significant upside potential for HBIO's stock.
Technical Perspective
I zoomed all the way out to the monthly chart where each candle stick represents 1 month. We can see that HBIO is bouncing higher from a multi-year support level in the $2 range. The MACD (middle of the chart) didn't confirm an upward trend yet. However, the MACD did confirm the upward trend on the weekly chart. It looks like the blue monthly MACD line is close to crossing above the red signal line. The purple RSI line on the bottom of the chart is pointing upward, which is bullish. This indicates that we could see a long-term continuation of the rally which began in December/January.
Balance Sheet/Cash Flow
One of the main risks for HBIO is the high amount of net debt of $49.7 million that the company has on the balance sheet. HBIO has $4.5 million in total cash with $54.2 million in total debt. The company is in a capital intensive business which leads to the high amount of debt.
However, it is not all that bad. Moody's gives HBIO an Aaa credit rating, which is considered highest quality with minimal risk. Moody's is probably giving HBIO a high rating due to the ability of the company to pay off its debt.
HBIO has 2.2x more current assets than current liabilities and 1.98x more total assets than total liabilities for total equity of $72.2 million. These ratios indicate that HBIO is in good shape for handling its short and long-term debt.
The company's cash flow statement shows operating cash flow of $1.2 million with levered free cash flow of $10.3 million. HBIO issued $7.8 million in debt in 2022, but repaid $9.6 million in long-term debt. HBIO spent $1.6 million for share repurchases and $1.6 million in CapEx. The company tends to repay more debt than they issue in most years.
Harvard Bioscience's Long-Term Outlook
HBIO's stock looks attractive for the long-term. The industry's expected growth for the rest of the decade should provide a tailwind for the sales of Harvard Bioscience's products. The company's low valuation and strong expected earnings growth is likely to drive the stock for above-average gains.
The stock is bouncing higher from a long-term multiple-year support level. It looks like the stock is set-up for another strong run similar to the doubling in price from 2018 to 2021. If the stock doubled in price within a year based on expected EPS of $0.25 for 2023, it would take the PE up to 24.8 which is near the industry average of 24.6. I don't know if that will happen, but I do expect the stock to outperform the broader market over the next several years. This can be driven by above-average earnings growth from a low valuation.
For further details see:
Harvard Bioscience: Stock To Rise On Long-Term Growth And Attractive Valuation