Investing.com -- Goldman Sachs (NYSE:GS) has initiated coverage of Sartorius Stedim Biotech (EPA:STDM) with a "buy" rating, flagging a 12-month price target of €225, reflecting an upside potential of about 22%.
This optimistic outlook is underpinned by the company's favorable positioning within the bioprocessing market and its more attractive valuation relative to its parent company, Sartorius AG.
Goldman Sachs analysts emphasize that Sartorius Stedim, with a higher quality business mix, lighter leverage, and stronger growth prospects, stands to benefit from the gradual recovery of the bioprocessing sector.
The bioprocessing industry has seen considerable volatility in recent years, driven by destocking dynamics post-COVID. Sartorius Stedim’s shares have been particularly impacted, falling by 65% from their peak in October 2021.
However, Goldman Sachs sees potential for a rebound as the market stabilizes and returns to more normalized growth patterns.
“From a high level, we like the long-term dynamics in the bioprocessing market, and see Stedim as being in a strong position to deliver compounding returns as the single-use market returns to normalised growth,” the analysts said.
One of the primary reasons for the positive outlook is the reset of earnings expectations for Stedim after the pandemic-driven surge. The company saw benefits during COVID-19 due to its role in vaccine and therapeutic production.
As these tailwinds faded, the destocking across the industry created headwinds for revenue and profitability. However, Goldman Sachs believes that earnings expectations have now been sufficiently reset to reflect a more sustainable growth path, with 2025 projected to mark the beginning of a broader recovery.
From a valuation standpoint, Sartorius Stedim offers a compelling investment case when compared to Sartorius AG. Despite both companies trading at similar EV/EBITDA multiples for 2025 (around 23.6x for Stedim versus 23.8x for Sartorius AG), Stedim boasts a stronger growth profile, higher margins, and lower financial leverage.
This combination, as per Goldman Sachs, makes Stedim a more attractive bet for investors looking to capitalize on the bioprocessing industry's recovery. The company's leverage ratio is expected to fall from 2.9x net debt/EBITDA at the end of 2024 to 0.6x by 2028, further strengthening its financial position.
The long-term dynamics of the bioprocessing market remain robust, driven by structural growth factors such as the increasing global demand for biologic drugs. Stedim, with its strong position in single-use bioreactors and other bioprocessing tools, is expected to capture a big share of this growing market.
“Our analysis of order book dynamics and the expected recovery in revenues suggests that destocking will likely impact Sartorius until around mid-2025, as Stedim will likely still see some destocking in the filtration business,” the analysts said.
The overall outlook for revenue growth is positive, with expectations of a return to double-digit revenue expansion in the years following 2025.
Goldman Sachs’ analysts also point out that while the company’s recovery will likely be gradual, they foresee upside risks to current consensus estimates beyond 2025.
Their revenue and EBITDA estimates for 2026 and beyond are slightly ahead of consensus, driven by expectations of stronger market dynamics and potential operational improvements.
Moreover, the analysts note that while the book-to-bill ratio may remain below 1 until 2026, this is not necessarily a reflection of weak growth but rather the clearing of backlogs in orders that built up during the pandemic.