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Investing.com -- Barclays (LON:BARC) has upgraded Sartorius AG (F:SATG) and its subsidiary Sartorius Stedim (EPA:STDM) Biotech SA (VIE:DIM) to Overweight, citing a shift in the bioprocessing industry toward a post-COVID recovery.
The firm sees both stocks trading at a significant relative valuation discount to peers, creating an opportunity for upside as order momentum returns.
"Following strong 4Q24 order numbers and positive demand commentary, our R4Q back-test analysis of bioprocess solutions (BPS) orders suggests the industry has emerged into a new post-COVID world," Barclays analysts wrote.
Despite underperformance since fiscal year 2024 (FY24) results, with SRT down 15% and DIM 11% since January 28, the bank sees the potential for outperformance through FY25.
Barclays’ valuation analysis indicates that "compared to global bioprocessing peers, both SRT and DIM are trading well below their long-term averages” based on enterprise value (EV) relative to next twelve months’ (NTM) EBITDA.
Looking ahead, Barclays forecasts SRT to deliver approximately 12% bioprocess solutions (BPS) order growth in FY25, with overall group sales growing around 7.3%.
The report also notes that "with re-based consensus expectations, positive order growth should support a return to positive estimates momentum."
Free cash flow generation remains a key factor, with FY24 FCF at €566 million, a 93% year-over-year increase. The firm expects leverage to decline below 3.0x by FY26.
Barclays has raised its price targets for both stocks, moving SRT to €320 per share from €260 and DIM to €250 per share from €200.
The bank expects that "a return of reliable customer order demand in a new post-COVID ’normal’ from 1H25 is set to drive positive earnings estimates momentum, improve investor goodwill, return long-only interest to shares and drive a re-appreciation of its current discount vs the broader market."