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Bio-Rad (BIO) Hurt by Macroeconomic Woes, Margin Pressure

Bio-Rad BIO is currently grappling with industry-wide softness, global macroeconomic headwinds, competitive pressure and adverse currency impacts. The stock carries a Zacks Rank #5 (Strong Sell), at present.

Since the beginning of 2023, Bio-Rad has been witnessing softness in smaller biopharma companies, where historically, demand for life science products has been strong. This directly correlates with the funding constraints the broader pharmaceutical industry has been experiencing. Management stated that biopharma softness resulted in the Life Science Segment’s decelerated growth.

In the third quarter of 2023, negative BioPharma macro trends persisted. Bio-Rad experienced reduced demand from biopharma customers for its process chromatography resins and from both biopharma and smaller biotech customers for the Life Science research projects products. Bio-Rad experienced weaker demand from government accounts in China due to softening macroeconomic conditions.

On the third-quarter earnings call, management stated that the situation might have a potentially larger impact on the company’s BioPharma business than initially communicated. This takes into account a core revenue guidance cut of 200 basis points related to the third-quarter revenue shortfall due to weakness in BioPharma and softer demand in China.

In recent times, Bio-Rad’s margin performance has been affected by the inflationary trend of elevated raw material costs, increased logistics costs and higher employee-related expenses. In the third quarter, the company’s gross margin was additionally impacted by an unfavorable product mix, with a higher-than-anticipated percentage of instrument sales versus reagents, as well as lower-than-projected revenues in the Life Science Group.

Bio-Rad Laboratories, Inc. Price

Bio-Rad Laboratories, Inc. Price
Bio-Rad Laboratories, Inc. Price

Bio-Rad Laboratories, Inc. price | Bio-Rad Laboratories, Inc. Quote

These macroeconomic factors, particularly the ongoing labor unrest, rising wage and raw material costs, along with ongoing geopolitical unrest, are leading to a significant escalation in the company’s operating expenses. Bio-Rad posted a 3.9% year-over-year decline in operating profit in the third quarter.

Added to this, Bio-Rad operates in a highly competitive environment dominated by firms varying from large multinational corporations with significant resources to start-ups. Also, the competitive and regulatory conditions in the markets where the company operates limit Bio-Rad’s ability to switch to strategies like price increases and other drivers of cost increases. Further, the extension of the public tender commitments to multiple years by the government, resulting in a reduced number of annual tenders, has led to aggressive tender pricing by Bio-Rad’s competitors. Thus, Bio-Rad faces pricing pressure resulting from increased competition, which makes it difficult for the company to manage operational, financial and business conditions efficiently.

Over the past year, shares of BIO have plummeted 28.1% compared with the industry’s 10.5% drop.

On a positive note, following the acquisition of Dropworks in 2021, Bio-Rad has been consistently developing its foothold in the rapidly growing digital PCR space to address additional opportunities in the PCR market. The pipeline of Bio-Rad’s QX600 Droplet Digital PCR platform is currently robust and growing. Backed by the tremendous customer response, the company continues to ramp up production capacity to accommodate the ongoing demand.

In the third quarter, within Life Science Group, academic and government sales of Life Sciences were strong in the Americas, encouraged by several noteworthy announcements involving ddPCR. On the clinical testing front, the Bio-Rad QX ONE platform has been selected for SMA testing for all newborns in Hong Kong and in the United States. Geneoscopy announced it had published the results of the pivotal CRC-PREVENT clinical trial, reporting the highest sensitivity for detecting colorectal cancer among similar tests powered by BIO’s QXDx ddPCR platform. In the United States, Verily won a major multi-year national wastewater testing contract from the CDC based on Bio-Rad’s QX600 platform. Management views these as contributors to future growth and a strong reinforcement of the versatility and the impact of the technology.

Key Picks

Some better-ranked stocks in the broader medical space are Abbott Laboratories ABT, DexCom, Inc. DXCM and Integer Holdings Corporation ITGR.

Abbott, carrying a Zacks Rank of 2 (Buy), reported adjusted EPS of $1.14 for third-quarter 2023, beating the Zacks Consensus Estimate by 3.6%. Revenues of $10.14 billion outpaced the consensus mark by 3.6%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Abbott has a long-term estimated growth rate of 5.1%. ABT’s earnings surpassed estimates in all the trailing four quarters, the average surprise being 6.8%.

DexCom reported third-quarter 2023 adjusted EPS of 50 cents, beating the Zacks Consensus Estimate by 47.1%. Revenues of $975 million surpassed the Zacks Consensus Estimate by 4%. It currently carries a Zacks Rank #2.

DexCom has a long-term estimated growth rate of 33.6%. DXCM’s earnings surpassed estimates in all the trailing four quarters, the average surprise being 36.4%.

Integer Holdings reported adjusted EPS of $1.27 for third-quarter 2023, beating the Zacks Consensus Estimate by 20.9%. Revenues of $404.7 million surpassed the Zacks Consensus Estimate by 8.7%. It currently carries a Zacks Rank #2.

Integer Holdings has a long-term estimated growth rate of 15.8%. ITGR’s earnings surpassed estimates in all the trailing four quarters, the average surprise being 11.9%.

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DexCom, Inc. (DXCM) : Free Stock Analysis Report

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