Bruker Corporation: A High Price To Pay

Summary

• Bruker Corporation has been performing exceptionally well as of late, driven by strong sales growth and an increase in profits.
• However, it's uncertain whether recent moves higher on its top and bottom lines are here to stay.
• At best, shares look to be fairly valued, with the possibility existing that they are overpriced.
• Looking for a helping hand in the market? Members of Crude Value Insights get exclusive ideas and guidance to navigate any climate. Learn More »

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Beyond any doubt, this modern age could be described as a scientific age. And a big part of science is utilizing the tools available to us in order to better understand how reality works. Naturally, there must be companies dedicated to providing the kinds of products that facilitate this intellectual pursuit. And one of them is a firm called Bruker Corporation (NASDAQ:BRKR). Prior to the COVID-19 pandemic, Bruker succeeded in growing its revenue and profits in a fairly consistent manner. The pandemic did cause the company to take a small step back. But since then, performance has been even more impressive than it was previously. Long term, the company will likely fare well for investors. But this does not mean that the company makes for an attractive opportunity at this time. Shares probably are, at best, fairly valued. But more likely than not, they are overpriced to some extent. And for that reason, investors would be wise to tread cautiously moving forward.

A play on scientific inquiry

Bruker operates as a developer, manufacturer, and distributor of scientific instruments and analytical and diagnostic solutions. These products are largely focused on facilitating the exploration of life and materials at the microscopic, molecular, and cellular levels. The company's products and other solutions address the needs of life science research firms, pharmaceutical companies, biotechnology firms, materials science businesses, nanotechnology companies, and so much more. It offers various technology platforms that include magnetic resonance technologies, mass spectrometry technologies, x-ray technologies, etc. On the testing solutions side, the company's portfolio provides offerings that are used in microbiology and infectious disease diagnostics. These include pathogen identification offerings and PCR tests for infectious diseases.

Today, the company operates under three key segments. The first of these is called the BSI Life Science segment. This particular segment includes a couple of different operating groups for the company that sell things like instruments based on nuclear magnetic resonance, electron paramagnetic resonance, computed tomography, etc. And it also is responsible for the company’s daltonics and optics divisions that largely focus on life science mass spectrometry, various molecular diagnostics, and more. According to management, this segment accounted for 62.7% of the company's overall sales in 2020, and for an impressive 90.2% of segment profits.

The next segment to pay attention to is called BSI NANO. Through this, the company sells advanced x-ray instruments and related technologies. Its products also include atomic force microscopy instrumentation, fluorescence microscopy offerings, and more. This segment accounted for 27.8% of the company's sales in 2020. And it was responsible for 7.8% of its segment profits. And finally, we have the BEST segment, which focuses on superconducting materials such as metallic low-temperature superconductors that are used in magnetic resonance imaging, nuclear magnetic resonance, fusion energy research, etc. This particular segment accounted for 9.5% of the company's revenue in its 2020 fiscal year and 2% of its total segment profits.

Segment information aside, it is worth mentioning that the company is a truly global operator. In its latest fiscal year, only 22.9% of revenue came from the US. Germany accounted for 12.3% of sales, with a further 26.2% of revenue coming from the rest of Europe. A huge area of concentration for the business is the Asia Pacific region, which, in 2020, made up 31.7% of the company's overall revenue. And all other nations combined made up 6.9% of sales.

Author - SEC EDGAR Data

Between 2016 and 2019, management did well to grow the business. Revenue increased from $1.61 billion to $2.07 billion. Then, in 2020, sales dipped slightly to $1.99 billion. Fortunately for investors, that decline in revenue was short-lived. In the first nine months of the company's 2021 fiscal year, revenue came in at $1.73 billion. That represents an increase of 27.5% over the $1.36 billion generated in the first nine months of 2020. When it comes to profits, the picture has been rather volatile. There is no clear trend when it comes to net income. But the same cannot be said of other cash flow metrics. Between 2016 and 2020, operating cash flow expanded from $130.8 million to $332.2 million. And EBITDA grew from $269.6 million to $372 million. It is worth noting that 2019 saw slightly higher EBITDA of $396.2 million.

Author - SEC EDGAR Data

In 2021, profits moved even higher. Net income of $201.4 million in the first nine months of the year dwarfed the $88.9 million achieved at the same time one year earlier. Operating cash flow expanded from $129.2 million to $143.8 million. And EBITDA grew from $230.6 million to $390.7 million. For the full 2021 fiscal year, management has provided some guidance. They expect sales to come in between 19.5% and 20.5% higher than they did in 2020, with organic revenue expanding by between 16.5% and 17.5%. Adjusted earnings per share should be between $2.05 and $2.09. That would imply adjusted net profits of $313.9 million. Annualizing other profitability metrics would give us operating cash flow of $369.7 million and EBITDA of $630.3 million.

Author - SEC EDGAR Data

All of this makes it fairly simple to value the business. On a price-to-earnings basis, the company is trading at a multiple of 30.5. This compares to the 60.6 we get if we rely on 2020 figures. The price to operating cash flow multiple should be 25.9, down from the 28.8 we get if we rely on the 2020 data. And the EV to EBITDA multiple should decline from 26.1 to 15.4. To put this all in perspective, I compared the company to five other similar firms. On a price-to-earnings basis, these companies ranged from a low of 19 to a high of 90.5. Two of the five companies were cheaper than Bruker. I then did the same thing using the price to operating cash flow approach, resulting in a range of 14.7 to 127.8. In this case, four of the five companies were cheaper than our target. And using the EV to EBITDA approach, the range was 12.1 to 56. In this case, only one of the companies was cheaper than our prospect.

Company	Price / Earnings	Price / Operating Cash Flow	EV / EBITDA
Bruker Corporation	30.5	25.9	15.4
Repligen (RGEN)	90.5	127.8	56.0
Syneos Health (SYNH)	37.1	24.6	20.0
QIAGEN N.V. (QGEN)	19.0	15.9	12.1
Maravai LifeSciences Holdings (MRVI)	43.1	14.7	21.0
Thermo Fisher Scientific (TMO)	26.6	22.3	18.2

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Takeaway

Fundamentally, it looks to me as though Bruker is a healthy company that has a bright future ahead of it. Fundamental results on the bottom line are a bit more volatile than I would like, but so long as growth continues, things should end up okay. Having said that, shares of the enterprise do look very pricey at this time. I suppose that if growth continues at the current pace, things might not be all that bad from a pricing perspective. But that is probably being generous to the company. More likely than not, I would say that shares are probably slightly overpriced at this time. But instead of going short the business, given the quality of the enterprise and its continued growth, a better path might be to just sit by the sidelines and wait for a better entry point.

Analyst’s Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.