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Sartorius: Macroeconomic Uncertainty Still Weighing on Sales Growth, Prolonging Reset Period

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Management for wide-moat companies Sartorius AG and its bioprocessing subsidiary, Sartorius Stedim Biotech DIM, reduced full-year fiscal 2023 guidance and announced preliminary third-quarter results that showed softness. After adjusting our forecasts to incorporate the weaker full-year expectations, we are maintaining our fair value estimates for both firms. Macroeconomic headwinds, uncertainty around investments by biopharmaceutical customers, and tough comparable periods may plague the firm for longer than previously expected, and this is the second time this year management has lowered full-year guidance due to these factors. Nevertheless, longer-term growth drivers for the Sartorius companies remain sound, in our opinion, and if shares decline substantially on this news, we think investors may want to view that as an opportunity to invest in strong life science with stellar long-term prospects.

Third-quarter revenue decreases were mainly driven by lower production levels and hesitant spending activity by biopharmaceutical clients. These ongoing volume challenges weighed on sales growth, and full-year revenue is now expected to decline by a high-teens percentage for both firms, from prior guidance of a low- to mid-teens percentage decline. As a result of both the top-line pullback and changing product mix, profitability forecasts were tempered as well. Full-year adjusted EBITDA margin expansion is now expected to be roughly 28% from prior guidance of around 30% for both firms.

Our updated full-year revenue growth and profitability estimates are roughly in line with the new guidance. Likewise, we maintain our growth trajectories over the medium term. Overall, we believe that after near-term uncertainty eases, more robust demand will likely return for the firms’ solutions, leading to much stronger revenue and profit growth 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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