On Thursday, HSBC maintained its Buy rating and a price target of EUR70.00 on Eurofins Scientific SE (ERF:FP) (OTC: ERFSF). The firm stands by its assessment that the current market valuation of Eurofins does not fully capture the company's growth prospects, especially considering the recent downturn in the stock's performance following allegations by Muddy Waters (NYSE:WAT) regarding cash conversion, organic growth, and lease accounting, with particular emphasis on related party transactions.
HSBC anticipates a rebound in biotech funding and European business, which could potentially accelerate Eurofins' growth towards the end of the year. Nonetheless, the firm acknowledges that potential price reductions stemming from reimbursement changes could pose a challenge. Despite a general decline in organic growth, Eurofins has reported that its core business, excluding COVID-19-related sales, has sustained a growth rate above its medium-term objective of 6.5% per annum. The management of Eurofins has expressed confidence in meeting its medium-term targets for the fiscal year 2027.
Eurofins' strategic shift towards focusing on start-ups, as opposed to mergers and acquisitions, is a response to the high market multiples currently present.
This approach, which may initially dilute margins for the first two to three years, is seen as a necessary adjustment given the market conditions. HSBC believes that the potential for margin expansion may be challenging under these circumstances, but posits that these risks are already factored into the current stock price.
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