On Wednesday, Citi downgraded Bio-Techne Corp. (NASDAQ:TECH) stock from Buy to Neutral, setting a price target of $85.00.
The decision comes after a significant rise in the company's shares, with a more than 30% increase since the third fiscal quarter earnings report.
The downgrade is attributed to concerns over the stock's current valuation and uncertainties surrounding biopharma funding and operations in China.
Bio-Techne's Protein Sciences segment, which generates around 60% of its subsegment revenues from reagents, is viewed as carrying some risk due to macroeconomic uncertainties.
However, the management of Bio-Techne has expressed a positive outlook based on funding and market conditions in China and the biopharma sector.
The Protein Sciences segment is noted for its higher operating profit margins, approximately mid-40%, compared to the company's overall margins in the low to mid-30s percent range.
The current valuation of Bio-Techne is also a concern for Citi, as the stock is now trading at a greater than 10 times premium on a forward-year two enterprise value to EBITDA basis compared to Citi's Core Tools Index.
According to Citi's analysis, Bio-Techne's valuation premium relative to its margin expansion is higher than nearly all of its peers within Citi's coverage.
Citi suggests that investors are looking for companies with attractive valuations that are relative to their potential for margin expansion and upside to earnings per share.
Given the range of results in the Tools sector, Bio-Techne's current premium valuation makes it difficult to argue for continued outperformance in the market.
InvestingPro Insights
With Bio-Techne Corp. (NASDAQ:TECH) experiencing a sharp increase in share price, it's important to consider various financial metrics and analyst insights that could influence investor decisions. According to InvestingPro data, Bio-Techne has a market capitalization of $13.03 billion and trades at a high earnings multiple, with a P/E ratio of 64.35. Despite the high valuation, the company's cash flows have been able to sufficiently cover interest payments, which is a positive sign for financial stability.
InvestingPro Tips highlight that while analysts have revised their earnings downwards for the upcoming period, Bio-Techne has maintained dividend payments for 17 consecutive years, suggesting a commitment to returning value to shareholders. Additionally, the company operates with a moderate level of debt and its liquid assets exceed short-term obligations, indicating a solid financial position.
For investors considering the long-term potential of Bio-Techne, it's noteworthy that the company has seen a strong return over the last month, with a 31.79% increase. This performance is in line with the overall positive trend over the last six months, where the stock has risen by 30.33%. However, the company's valuation remains a point of discussion, as it trades at a high Price/Book multiple of 6.47.
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