Morningstar | Lonza's Manufacturing Business Remains Steady Through 3Q, but Shares Remain Overvalued
Lonza provided a qualitative update on Oct. 25, with management indicating that they are on-track to achieve the reaffirmed full-year guidance of mid- to high-single-digit growth in revenue and 100-basis-point improvement in adjusted EBITDA margin. The pharma and biotech segment in addition to consumer health continue to drive growth for the firm, with pharma and biotech benefiting from biologics demand. While Lonza is currently benefiting from positive industry trends of strong demand, we believe that the business could suffer in the event of economic downturn, which is why we reiterate our rating of no economic moat. Further, we are maintaining our fair value estimate of 215 CHF, with shares remaining overvalued.We were pleased to hear that the firm's several internal investments are moving along on schedule, including new facilities geared for biologic development, in addition to a recently announced expansion of Ibex Solutions for antibody development. Lonza indicated that Ibex would be built out as they see indicators of customer demand, which we believe is a prudent strategy to invest in capacity without overspending. Consumer health continues to drive momentum in Lonza's specialty ingredient segment, offset by weakness in the consumer and resources protection and water care segments.
Lonza supplies services and products that range from active pharmaceutical ingredients and stem-cell therapies to drinking water sanitizers, from vitamin B compounds and organic personal care ingredients to agricultural products, and from industrial preservatives to microbial control solutions. Co. operates in two segments: Lonza Pharma & Biotech, which clusters all of Co.'s offerings for pharmaceutical markets, focuses on providing custom development, custom manufacturing, cell therapy, viral therapeutics and bioscience solutions; and Lonza Specialty Ingredients, which includes offerings in its consumer care, agro ingredients, industrial solutions, wood protection and water treatment.
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