As Danaher (DHR) is set to kick off the earnings season of the makers of Life Sciences & Diagnostic Tools on Thursday, Bank of America analysts led by Derik de Bruin issued cautious views on the subsector, citing macro and geopolitical headwinds.
The earnings season for the group comes at a time the S&P 500 Life Science Tools Index is trailing the broader index, the analysts point out, attributing the underperformance to issues such as COVID-related lockdowns in China and Russia/Ukraine conflict.
The Chinese restrictions are likely to impact companies with sizable revenue exposure to the specific region, the analysts said, citing Align Technology (ALGN) as an example.
Meanwhile, firms like Agilent Technologies (A) and PerkinElmer (PKI), both of which have significant manufacturing exposure to China and Shanghai, in particular, could also face challenges, the analysts argue. Yet, they stopped short of updating the companies' models, citing the need for management feedback.
However, despite issues such as clinical trial delays, BofA projects a modest headwind related to Russia/Ukraine conflict.
Meanwhile, concerns over slowing macro and GDP growth, inflationary pressures, and supply chain/ logistical challenges could hurt the top line and margins across the group, the team warns.
They point to global trends in COVID-19 case counts, vaccinations as well as cautious remarks issued by Johnson & Johnson (JNJ) and Merck KGaA (OTCPK:MKGAF) (OTCPK:MKKGY). As a result, the team flags downside risks to bioprocessing revenues of companies such as Danaher (DHR), Thermo Fisher Scientific (TMO), Maravai LifeSciences (MRVI), Avantor (AVTR), and Catalent (CTLT).
In addition, despite continuing signs of strong balance sheets and appetite for R&D expenditure, the sluggish capital markets could be a concern for companies relying on early-stage biotech firms for revenue. The team also points out that many U.S.-based names will grapple with unfavorable changes to forex rates since they last reported.
Refer to Seeking Alpha’s Earnings Calendar to keep track of the upcoming financial releases for the above companies.