Is Bio-Rad Labs Stock A Buy?

Bio-Rad Laboratories, Inc. (NYSE:BIO) develops and manufacturers a variety of life science instruments, products, and supplies. They are used in commercial, academic, and government laboratories for complex biological and chemical analysis. This includes instrumentation to work with bacteria, cells, antibodies, proteins, and nucleic acids, like RNA.

Shovels are a great sell during the gold rush, so is Bio-Rad Labs stock a Buy?

The pandemic catapulted Bio-Rad onto investor radar screens. It earned revenue from so many governments pouring money into vaccine development. This made many of its products hot commodities as spending increased. And Operation Warp Speed was a tailwind that accelerated the trend.

Healthcare is a key issue at the forefront of political agendas. Scientific research spending is likely to continue to increase across life sciences as COVID-19 and other trends push a need for equipment.

We put Bio-Rad Labs under the microscope to find out if this investment will cure investor’s need for profits or if it will grow moldy instead.

Bio-Rad Labs: The 10,000 Foot View

Bio-Rad creates and sells a broad range of life science research and clinical diagnostic products. It was founded and still headquartered in Hercules, California in 1952 by David and Alice Schwartz. Now it’s a component of the S&P 500 and has three key markets:

Life Science Research – The company creates instruments, software, and supplies for drug research and cell biology. It focuses on identification, analysis, and manipulation of microscopic and even sub-atomic substances, like proteins, cells, proteins, and bacteria. Cannabinoid testing requires much of the same equipment.

Clinical Diagnostics – Bio-Rad is a global leader for in-vitro diagnostic supplies. This includes autoimmune and infectious disease testing, diabetes monitoring, and blood transfusions. With rising interest in coronavirus testing, this market grew too.

Digital Biology – DNA and RNA molecules require digital technology, and the company has a variety of solutions. This is technology used by companies like 23andMe and Ancestry for family lineage and health diagnostics. It’s the IRL version of what you see in movies like Jurassic World.

This forms a solid foundation for revenue growth during the largest global health scare for generations.

Is Bio-Rad Labs Stock A Buy?

Bio-Rad’s third quarter 2020 earnings showed $647.3 million in revenue, an increase of 15.5 percent from $560.6 million in the same quarter of 2019.

It also increased its gross margin to 56.7 percent. This gave the company $90.3 million in profits, versus $48.6 million the prior year’s quarter.

A discounted cash flow analysis for the company shows that fair market value or intrinsic value for BIO share price is $655 per share. Price levels that exceed this ceiling would suggest the company is overvalued and ripe for a correction.

For bargain hunters a rule of thumb is to scout for opportunities at least 20% below the intrinsic value but deals are really made when a sharp correction ensues and a company can be snapped up for a 50% discount or more.

At $3.00 earnings per share, this stock could be poised for growth. But there are inherent risks to be aware of with any investment.

Demand Boost Increased Bio-Rad Labs Revenues

Bio-Rad Labs can attribute its massive growth to fiscal spending that increased following the worldwide pandemic. Operation Warp Speed and other government-funded aid packages gave free grant money to pharmaceutical and biotech companies involved in COVID-19 vaccination research.

The testing equipment and software for such endeavors is Bio-Rad’s bread and butter. This significantly increased demand for its products, which gave it a big boost in sales revenue, specifically in the company’s PCR and Droplet Digital PCR equipment.

Meanwhile, clinical diagnostic equipment was less necessary. It’s the other side of the coin, as fewer people seek medical attention during state and nationally imposed restrictions. As this pandemic carries into the decade, it could have unintended consequences on the company’s bottom line and future growth potential.

The company could outperform 2020 levels in 2022 but fail to meet 2021 growth levels. In fact, it could stagnate in 2021. This could weaken investor confidence in its long-term growth prospects versus the market.

And market conditions aside, the company has stiff competition.

Bio-Rad Labs Operates In A Red Ocean

The holy grail for a company is to operate in a blue ocean – that is, an untapped marketplace with few rivals. Bio-Rad operates in quite the opposite, a red ocean – so-called because it’s bloody from the fierce competition of peers.

It’s a seller’s market right now, as buyers are flooding in with government funds. That’s going to last through 2021, but it’s unclear how much longer it will go past that. Companies like Bio-Rad Labs may not experience the same level of growth in five or even ten years from now.

Until then, there are plenty of billion-dollar companies with skin in the game. Beckman Coulter Life Sciences, BD, VWR International, and Thermo Fisher Scientific (TMO) all create similar scientific equipment. What they don’t have, they can create.

This means the company has to compete for the next round of those OWS funds, and it needs to secure long-term contracts to get consumables ordered by clients.

There’s another factor in play too – universities and other labs are moving virtual just like everyone else. This adds a cloud-based component to many of its digital services. Some form of robotics and automation could come into play to keep things running across geographic borders.

Is Bio-Rad Labs Stock A Buy? The Bottom Line

Bio-Rad Laboratories designs, manufactures, and sells life sciences and medical diagnostics equipment. It’s capable of looking at things at a molecular level and can manipulate and analyze everything from RNA to proteins, bacteria, and more.

In the current health climate, this likens the company to a shovel supplier in the gold rush or a drill bit supplier in the oil rush.

The company needs to wisely invest its profits into horizontal expansion through mergers and acquisitions. This will maintain its growth potential beyond the pandemic’s 15 minutes of fame.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.