Bio-Rad Laboratories, Inc. BIO is gaining investors’ confidence due to its Digital PCR business, which boasts a strong pipeline. The company’s Clinical Diagnostics arm is seeing increased demand for quality control, blood typing and diabetes products. Sound financial stability also appears encouraging. However, pricing pressure due to tough competition, along with adverse macroeconomic impacts, might deter Bio-Rad’s growth. Persistent reduced demand in the Biopharma segment adds to the worry.

Year to date, shares of this Zacks Rank #3 (Hold) company have lost 1.9% against the industry’s 8.2% growth and the S&P 500 composite’s 17.5% increase.

The renowned manufacturer and global supplier of clinical diagnostics and life science research products has a market capitalization of $8.92 billion.

In the past five years, the company registered earnings growth of 15.6%, way ahead of the industry’s 3.7% rise. Bio-Rad’s earnings surpassed estimates in three of the trailing four quarters and missed in one, the average surprise being 11.48%.

Let’s delve deeper.

Key Drivers

Digital PCR Business Backs Growth: Bio-Rad’s QX600 Droplet Digital PCR (ddPCR) platform is exhibiting robust growth. Backed by the tremendous customer response, the company continues to ramp up production capacity to accommodate the ongoing demand.

In the second quarter, despite the Droplet Digital PCR franchise being soft, ddPCR reagents and consumables grew low-single digits. The newly launched ddPCR assay is successfully gaining a share in the oncology and cell and gene therapy markets. Considering all these factors, the company is optimistic about ddPCR’s growth in the coming quarters.

Clinical Diagnostics Continues to Gain Momentum: Within this business, the company’s diabetes franchise is seeing elevated growth and a substantial improvement in the immunohematology and quality control businesses.

Sales of the clinical diagnostics group in the second quarter increased 2.1% on a reported basis. The growth was primarily backed by increased demand for quality controls and blood typing products on a geographic basis. The company continues to invest in supporting the growth of this segment while building a position in new molecular diagnostics segments.

Strong Solvency Position: Bio-Rad exited the second quarter of 2024 with cash and cash equivalents (including short-term investments) of $1.62 billion compared with $1.65 billion at the end of the first quarter of 2024. Total debt (including current maturities) at the end of the first quarter was $1.20 billion, almost in line with the previous quarter’s reported figure. The reported figure is lower than the corresponding cash and cash equivalent and investment level. This indicates a strong solvency position for the company.

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Downsides

Soft Biopharma Segment: Since the beginning of 2023, Bio-Rad has been witnessing softness in smaller BioPharma companies, where historically, demand for life science products has been strong.

In the second quarter of 2024, negative BioPharma macro trends persisted. Bio-Rad experienced reduced demand from biopharma customers and smaller biotech customers for Life Science research products, reflecting the ongoing destocking trend across the industry.

Bio-Rad experienced weaker second-quarter sales in Asia as China is currently facing a challenging research funding environment. Japan, too, is experiencing constrained funding issues. Additionally, the Korean government's spending on life science research remained soft throughout the second quarter as part of the deficit reduction.

Economic Concerns Pressuring Margins: In recent times, Bio-Rad’s margin performance has been affected by the inflationary trend of elevated raw material costs, increased logistics costs and higher employee-related expenses. These macroeconomic factors, particularly the ongoing labor unrest, rising wages and raw material costs, along with ongoing geopolitical unrest, are leading to a significant escalation in the company’s operating expenses.

Tough Competitive Pressure: Bio-Rad operates in a highly competitive environment, dominated by firms ranging from large multinational corporations with significant resources to start-ups. Also, the competitive and regulatory conditions in the markets where the company operates limit Bio-Rad’s ability to switch to strategies like price increases and other drivers of cost increases.

Further, the extension of the public tender commitments to multiple years by the government, resulting in a reduced number of annual tenders, has led to aggressive tender pricing by Bio-Rad’s competitors. Thus, Bio-Rad faces pricing pressure resulting from increased competition, which makes it difficult for the company to manage its operational, financial and business conditions.

Estimate Trends

The Zacks Consensus Estimate for Bio-Rad’s 2024 earnings per share (EPS) has moved down 4.2% to $10.36 in the past 30 days.

The Zacks Consensus Estimate for the company’s 2024 revenues is pegged at $2.59 billion, which indicates a 3% decline from the year-ago reported number.

Key Picks

Some better-ranked stocks in the broader medical space are TransMedix Group TMDX, Boston Scientific BSX and Intuitive Surgical ISRG.

TransMedix Group’s earnings are expected to surge 255.8% in 2024. The company’s earnings surpassed the Zacks Consensus Estimate in each of the trailing four quarters, the average surprise being 287.5%. Its shares have soared 163.7% compared with the industry’s 12.3% growth in the past year.

TMDX sports a Zacks Rank #1 (Strong Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

Boston Scientific, carrying a Zacks Rank #2 (Buy) at present, has an estimated earnings growth rate of 17.1% for 2024 compared with the industry’s 15.7%. Shares of the company have rallied 56.5% compared with the industry’s 12.3% growth over the past year.

BSX’s earnings surpassed estimates in each of the trailing four quarters, the average surprise being 7.2%.

Intuitive Surgical, carrying a Zacks Rank #1 at present, has an estimated long-term earnings growth rate of 17.4% compared with the industry’s 13.7%. Shares of the company have soared 67.9% compared with the industry’s 12.6% growth over the past year.

ISRG’s earnings surpassed estimates in each of the trailing four quarters, the average surprise being 8.97%.

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