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Here's Why You Should Add Bio-Rad (BIO) to Your Portfolio

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Bio-Rad Laboratories, Inc. (BIO - Free Report) has been gaining on robust growth in the Life Science segment. Its robust testing portfolio has also been impressive. Its better-than-expected results in the third quarter of 2020 buoy optimism. However, downsides may result from a stiff competitive landscape and a dull performance of the Clinical Diagnostics arm.

Over the past year, this Zacks Rank #2 (Buy) stock has gained 40.3% compared with 1.6% growth of the industry and 15.5% rise of the S&P 500.

The renowned manufacturer and global supplier of clinical diagnostics and life science research products has a market capitalization of $15.62 billion. The company projects 6.1% growth for the next year and expects to maintain strength in its Life Science business. The company surpassed estimates in three of the trailing four quarters and missed the same in one, the average surprise being 29.19%.

Let’s delve deeper.

Strong Q3 Results: We are upbeat about Bio-Rad’s third-quarter 2020 results. Strength in many of its key product lines across major geographies buoys optimism. Recent product launches, which strengthen Bio-Rad’s fight against the pandemic, raise optimism as well. Bio-Rad’s solid testing menu and expansion of both margins are also encouraging. The company’s full-year outlook looks promising.

Segmental Growth: We are upbeat about the robust performance of Bio-Rad’s Life Science segment in the third quarter of 2020. The reported growth was primarily driven by sales of polymerase chain reaction (“PCR”), Droplet Digital PCR (“ddPCR”) and Process Media products. Geographically, the company recorded year-over-year revenue growth at constant exchange rate across all regions. Per the company, despite affecting some of its business operations, the pandemic boosted demand for a few of its products in the reported quarter.

Robust Testing Portfolio: We are optimistic about Bio-Rad’s uptick in core PCR, ddPCR and Process Media product revenues, which resulted from robust demand due to COVID-19 testing and related research. The company launched two new PCR systems — the CFX Opus 96 and the CFX Opus 384 — to strengthen its global response and contribution toward combating the pandemic. Bio-Rad has also launched a blood-based immunoassay kit to identify antibodies to the SARS-CoV-2, the virus causing coronavirus in April.

The company has received Emergency Use Authorization from the FDA for its SARS-CoV-2 ddPCR test kit (in May) and SARS-CoV-2 Total Ab test (in April), which it has already commercially launched.

However, downsides might result from Bio-Rad’s operation in a highly competitive industry which includes large multinational corporations with significant resources, as well as start-ups. Also, the competitive and regulatory conditions in the markets where Bio-Rad operates limit its ability to switch to strategies like price increases or those which might push up costs. Further, the extension of the public tender commitments to multiple years by the government, resulting in reduced number of annual tenders, has led to aggressive tender pricing by Bio-Rad’s competitors.

Bio-Rad’s Clinical Diagnostics segment has continued with its dismal performance in the third quarter as well, similar to the last-reported quarter. The segment was adversely impacted by lower demand resulting from the COVID-19 pandemic. The adverse impact was across most product lines and all regions. Further, the company’s projection of a fall in segmental revenues for 2020 also raises apprehensions.

Estimate Trend

Bio-Rad has been witnessing a positive estimate revision trend for 2020. Over the past 90 days, the Zacks Consensus Estimate for its earnings has moved 21.6% north to $9.61.

The Zacks Consensus Estimate for fourth-quarter 2020 revenues is pegged at $681.8 million, suggesting 9.2% growth from the year-ago reported number.

Key Picks

A few other top-ranked stocks from the broader medical space are ResMed Inc. (RMD - Free Report) , Thermo Fisher Scientific Inc. (TMO - Free Report) and Align Technology, Inc. (ALGN - Free Report) .

ResMed’s long-term earnings growth rate is estimated at 14.5%. The company presently carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Thermo Fisher’s long-term earnings growth rate is estimated at 18%. It currently carries a Zacks Rank #2.

Align Technology’s long-term earnings growth rate is estimated at 18.3%. It currently carries a Zacks Rank #2.

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