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Lonza Group Ltd LONN

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Morningstar’s Analysis

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Economic Moat




Increasing Lonza's FVE to CHF 283 After Q1 Update; Business as Usual With Minimal COVID-19 Impact

Anna Baran Equity Analyst

Analyst Note

| Anna Baran |

We plan to increase our fair value estimate for contract manufacturer Lonza by about 3% due to favorable trends in business segments that are benefiting from mitigation efforts to stop the spread of COVID-19, such as vitamin production, microbial control solutions, and professional hygiene, as well as the impact of time value of money since our last update. Overall, Lonza's business has seen only modest headwinds from the pandemic as its manufacturing businesses are deemed essential in most markets. Further, we have not seen material changes in bookings from large pharmaceutical firms during the crisis, and this client base contributes the bulk of the firm's revenue from the narrow-moat drug manufacturing segment. Although Lonza is currently minimally vulnerable to plant shutdowns, we think the business will be impacted in the likely event that the pandemic brings the global economy into a recession, with lower demand across most of its business segments impacting 2021 results. We view shares as overvalued, with the market extrapolating the narrow-moat company's recent strong growth and largely ignoring the impact of a recession on Lonza's earnings.

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Company Profile

Business Description

Lonza Group is a contract development and manufacturing organization. It also produces microbicides and other chemicals for personal care, health and hygiene, agrochemical, and industrial preservation markets. The firm is organized into two segments: Pharma Biotech and Nutrition, which encompasses drug development and manufacturing as well as consumer health manufacturing, and Specialty Ingredients, which encompasses businesses in industrials, consumer care, and agriculture. The majority of Lonza's customers are pharmaceutical and biotechnology companies, academic and government research organizations, and consumer goods and industrial companies.

Muenchensteinerstrasse 38
Basel, 4002, Switzerland
T +41 613168111
Sector Healthcare
Industry Diagnostics & Research
Most Recent Earnings
Fiscal Year End Dec 31, 2020
Stock Type
Employees 15,468