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Sartorius Earnings: While Headwinds Still Present, Demand Recovery Begins Slowly

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Sartorius AG and Sartorius Stedim Biotech’s DIM third-quarter 2023 results were largely in line with expectations, and we are making no changes to our fair value estimates. Shares for both wide-moat companies currently look slightly undervalued, after falling due to last week’s update on preliminary third-quarter results and lowered full-year guidance. We believe it may be a good opportunity for investors to obtain shares at a discounted price, given that Sartorius reported seeing signs of recovery late in the third quarter. Order intake started improving toward the end of the third quarter, suggesting declines hit a floor in the second quarter and showed signs of recovery in the bioprocessing business, albeit at a slow pace. Shares are up slightly on these trends. However, uncertainty from macroeconomic and geopolitical factors remains elevated, and a full recovery in demand may be gradual heading into 2024.

The third quarter saw the impact of these macroeconomic factors and depressed demand levels continue, with revenue declining in the mid-20s on a percentage basis year over year for both firms. Although order intake is beginning a turnaround, the low-20s percentage decline in the third quarter may further stifle top-line growth in the near term. As a result of lower sales volumes as well as product mix effects, profit margins declined materially in the third quarter.

Looking forward, our full-year 2023 forecasts remain in line with management’s updated guidance, and we anticipate momentum building slowly as demand recovers across the business in the near term. However, the longer-term fundamental drivers of Sartorius remain strong, in our opinion, driven primarily by robust biopharmaceutical industry growth that supports healthy demand for the firms’ products. Beyond 2023, we expect low-double-digit revenue and midteens adjusted EPS growth compounded annually from the Sartorius companies in the long run.

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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