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Eurofins Earnings: COVID-19 Sales Losses Almost Over as Underlying Growth Starts to Pick Up

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Securities In This Article
Eurofins Scientific SE
(ERF)

We maintain our EUR 80 fair value estimate for narrow-moat Eurofins ERF following second-quarter results that were about as expected. Revenue growth excluding the loss of COVID-19 sales accelerated sequentially from the first quarter and held strong at 7% year over year for the first half of 2023. The firm’s pricing power has supported this robust revenue growth and is expected to help fully overtake the drag of lost COVID-19 sales on revenue in the back half of the year. However, macroeconomic effects from the war in Ukraine and foreign exchange headwinds persist, weighing on profitability gains and causing management to decrease full-year 2023 guidance.

We have lowered our full-year 2023 estimates as well, as stronger-than-anticipated foreign exchange headwinds and less contribution from slowed investment activity may dampen growth over the next two quarters. For 2023, our revenue growth forecast is now 1%, down over 200 basis points from where it was previously slightly above the top end of prior guidance. Our 2023 adjusted EBITDA margin forecast remains roughly the same, as the firm continues to manage cost inflation with price increases. With long-term growth drivers appearing intact, we have marginally raised our 2027 revenue growth and adjusted EBITDA margin expansion forecasts, which are now closer to management’s unchanged 2027 outlook. These adjustments to our model roughly offset each other, leading to our unchanged valuation. At current prices, Eurofins shares remain moderately undervalued.

We believe the firm’s strategies around bolt-on acquisitions and expanding its hub-and-spoke network will continue to support testing efficiencies across revenue segments and geographies. These efficiencies will help the firm maintain its market-leading position in testing services, where strong demand is driven by biologics development across the biopharmaceutical industry and increased awareness around PFAS (per- and polyfluorinated substances) toxicity and pollution.

The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.

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Julie Utterback

Senior Equity Analyst
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Julie Utterback is a senior equity analyst for Morningstar Research Services LLC, a wholly owned subsidiary of Morningstar, Inc. Within the healthcare industry, she covers medical technology and service companies. She is also the chairperson of the equity research team’s capital allocation methodology.

Utterback joined Morningstar in 2005 as an equity analyst in the healthcare industry. At that time, she covered medical technology companies, including orthopedic device, medical equipment, and cardiac device firms. In 2010, she joined Morningstar's credit research team, initiating coverage of the entire healthcare industry and generally helping the organization expand and maintain its credit coverage across many industries. She held that senior credit analyst role until April 2019, when she returned to the equity team to cover medical technology and service companies.

Prior to joining Morningstar, Utterback was an equity analyst at State Farm Insurance for several years. She holds a bachelor's degree in finance from the University of Illinois Urbana-Champaign. She also holds the Chartered Financial Analyst® designation.

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