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Sartorius AG and Sartorius Stedim: 2023 Reset Period Steepening

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Securities In This Article
Sartorius AG Vorz-Inhaber-Akt ohne Stimmrecht
(SRT3)
Sartorius Stedim Biotech SA
(DIM)

Management at wide-moat companies Sartorius AG SRT3 and its bioprocessing subsidiary Sartorius Stedim DIM significantly reduced 2023 guidance, as demand for their life science tools have softened in the wake of small biopharmaceutical funding concerns, general macroeconomic uncertainty, and tough comparable periods in which some purchases may have been pulled forward. Considering those factors, we have significantly reduced our near-term assumptions and are reducing our fair value estimates on both companies by the mid-single digits on a percentage basis. While shares of both firms were trading in roughly fair territory prior to this announcement, we suspect they may decline substantially on this news. If shares wind up trading at significant discounts to our new fair values, we think investors with a long-term horizon may see such weakness as an opportunity to obtain shares in these growth companies at reasonable prices.

While profits are resetting after the heady growth experienced during the pandemic years, we suspect share performance may eventually improve if their growth trajectories normalize after a tough 2023. For example, both management teams reduced their guidance for 2023 substantially but maintained their 2025 goals. Specifically for 2023, both companies now expect low-to-mid-teens percentage declines in sales (from low-single-digit growth previously) and EBITDA margin contraction to about 30% (from 34% for Sartorius AG and 35% for Sartorius Stedim in 2022), which will cause an even steeper drop in profits.

In the long run though, the companies goals and prospects look largely unchanged. The Sartorius companies look well-positioned to benefit from expected biopharmaceutical growth, including a focus on large molecule drug manufacturing tools that should benefit from both relatively high growth (compared with toolmakers more exposed to small molecules) and durable switching costs (compared with toolmakers more exposed to initial research applications.)

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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About the Author

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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