Morningstar | Initiating Coverage of Bio-Techne With Narrow Moat and $122 FVE
We’re initiating coverage of Bio-Techne, a Minnesota-based biotechnology supplier to the life sciences and diagnostics industry, with a narrow moat and stable trend rating. Our fair value estimate of $122 per share implies a forward price/earnings multiple of 27. At the current market price, we therefore view shares as modestly overvalued.Bio-Techne supplies proteins, antibodies, assays, diagnostic tests, controls, and calibrators primarily to the academic research, biopharma, and clinical diagnostics markets. We think it possesses a narrow moat, primarily through intangibles and switching costs. In its legacy biotech segment, the company’s large and high-quality portfolio of sophisticated biotech products creates loyalty among researchers that run sensitive and valuable tests. This segment shows clear evidence of pricing power, with a segment gross and operating margin near 80% and 50%, respectively. The protein platform and diagnostic product lines also benefit from switching costs thanks to installed bases of instruments that have a recurring revenue stream of consumables.
Thanks in part to recent acquisitions of high-growth businesses, we model a 10% compound annual growth rate due to stable mid-single-digit growth in the company's legacy biotechnology and diagnostic segments. We anticipate sustainable double-digit growth from recent acquisitions like ACD and Exosome Diagnostics as well as ongoing market penetration of the company’s protein characterization instruments. Returns on capital have declined over the past few years as the company has embarked on a more aggressive merger and acquisition strategy to broaden its product offerings, enter higher-growth markets, and move up-market into more proprietary instruments and associated consumables. As these new business lines gain from operating leverage, we forecast adjusted operating margin gradually recovering back to above 40% by 2023.
Bio-Techne and its subsidiaries develop, manufacture and sell biotechnology life science reagents, instruments and services for the research and clinical diagnostic markets.Co.'s segments: Protein Sciences, which developes and manufactures purified proteins and reagent solutions, cytokines and growth factors, antibodies, immunoassays, biologically active small molecule compounds, tissue culture reagents and T-Cell activation technologies; and Diagnostics and Genomics, which develops and manufactures diagnostic products, including Food and Drug Administration-regulated controls, calibrators, blood gas and clinical chemistry controls and other reagents for Original Equipment Manufacturer.
Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors.
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