Revvity

For the second quarter, Revvity delivered 3% organic revenue growth and adjusted EPS from continuing operations of $1.41, above FactSet consensus of $1.21. Management also marginally raised guidance to 4%-5% organic growth and $5.30-$5.40 adjusted EPS.

Why it matters: Despite pro forma organic revenue and adjusted EPS beating estimates by 1.1% and $0.20, respectively, shares traded down about 3% in intraday trading on Aug. 4, which appears related to the low quality of the outperformance, related primarily to one-time items and weakness in the life science segment. About half the EPS outperformance came from one-time tariff refunds while another third was generated from tax benefits that are expected to reverse in the fourth quarter. While Diagnostics remained strong, investors may be concerned that the Life Sciences segment posted a 3% organic decline, including software down 20%. Management's commentary was optimistic about both the order backlog and the creation of AI-driven end-market demand aiding a Life Sciences recovery, but those factors are too nascent to be reflected in their conservative estimates for the rest of the year.

The bottom line: After adjusting our near-term expectations for the updated 2026 guidance, we are maintaining our fair value estimate of $122 for no-moat Revvity, and we believe shares remain fairly valued. Our fair value estimate reflects our view that Revvity should see improvement, albeit gradual, over the medium term, as we model mid- to high-single-digit top-line growth and considerable operating margin expansion over time. Also, investors should note that we require a relatively wide margin of safety around our fair value estimate due to our High Uncertainty Rating, which reflects elevated uncertainty, particularly around research and diagnostic funding in the firm's key end markets.

Our fair value estimate remains $122 per share.

After demand resets following the pandemic period, we expect mid-single-digit annualized revenue growth and, on average, low-double-digit earnings per share growth through 2030 on an organic basis. Following its recent divestiture, Revvity is a purely life sciences and diagnostics business. Due to operational efficiency and revenue growth, the focus on just these two business segments should increase gross margins. Also, when estimating operating margin, we expect Revvity to cut selling, general, and administrative expenses slightly while maintaining current R&D costs as a percentage of sales. We expect operating margin to rise from an average of about 15% over the past three years to the mid-20% range by 2030, driven by revenue mix shift and scale efficiencies.

Despite being positioned in an industry where intangible assets and customer switching costs can create durable advantages, Revvity’s switching costs in life sciences are not strong enough to warrant a moat. The open-ended nature of its reagent offerings and the absence of contractual lock-ins limit customer dependency, in our view. Furthermore, the firm’s recent portfolio transformations—most notably the 2021 BioLegend acquisition and the 2023 divestiture of its applied, food, and enterprise businesses—have also significantly weighed on its returns on invested capital. Those, coupled with lower postpandemic profit levels, and the subsequent reset period from 2023-25, we expect economic profits to trend below capital costs for at least the next five years. Beyond that, we see enough uncertainty about economic profitability to keep our rating into no-moat territory.

The life sciences segment supplies instruments, reagents, automation platforms, imaging and cell analysis tools, and informatics systems to support early stage drug discovery and research. Its customer base covers academic research and government institutions through biotech and biopharma firms. Key offerings include BioLegend antibodies and reagent panels used in immunology research, Cisbio’s HTRF assays for cell signaling and small-molecule screening, and AlphaLISA kits for high-throughput biomarker detection. Large capital instruments are expensive to purchase and install, and once adopted, laboratories rarely switch because replacing them would require recalibration, revalidation of assays, and staff retraining, which is costly and disruptive to ongoing research. However, most of Revvity’s instruments are modular and less embedded in customers’ research workflows compared with those offered by narrow- and wide-moat competitors, which limits the degree of dependency they create.

Roughly half of the life sciences segment revenue comes from reagents, which are consumables sold without contractual lock-ins. Because these products can be used interchangeably with competitors’ systems, researchers can switch suppliers with little cost or operational disruption. This dynamic contrasts with narrow-moat peers, who have built closed-loop ecosystems that tie reagent purchases to proprietary analyzers, embedding customers and generating recurring demand. Thus, despite some brand intangible value that can help attract researchers to Revvity’s products, we see no meaningful switching costs in this segment.

Revvity’s signals software business, which accounted for 16% of life sciences segment revenue in 2024, provides digital tools that support the full research and development lifecycle, including ChemDraw for molecular design, Signals Notebook for electronic lab recording, Signals One for unified data and artificial intelligence-enabled workflows, and Signals Clinical and Signals Synergy for trial data management and sponsor-CRO collaboration.

The business has delivered strong growth, with annualized portfolio value growing at 13% in the past year. It also benefits from entrenched products such as ChemDraw, which has become the industry standard for molecular drawing, and this creates meaningful switching costs for the segment, with contract lengths of up to five years, although not enough to change our view of the segment’s moat.

The diagnostics segment centers on immunodiagnostics and reproductive health by supplying instruments, reagents, and assay platforms to hospitals, private laboratories, and public health institutions. In immunodiagnostics, Revvity’s Euroimmun unit is a leading player in autoimmune and infectious disease testing, with strong brand recognition and a broad menu of assays that drive recurring reagent demand on placed instruments. Recent innovations, such as the IDS i20 fully automated chemiluminescence immunoassay analyzer and miniaturized EUROMicroblot platform, extend Euroimmun’s reach in autoimmune, allergy, and infectious disease testing. In the field of prenatal testing, its Vanadis noninvasive prenatal testing platform uses proprietary molecular technology that reduces the chance of false positives and offers a far more cost-effective alternative to sequencing-based competitors. Revvity is also the worldwide leader in newborn screening, offering comprehensive solutions for more than 70 metabolic, endocrine, and genetic disorders. This franchise supports health programs in over 100 countries with a full workflow that spans dried blood spot collection through preparation and advanced testing. Across these businesses, the combination of three-to five-year supply contracts, entrenched software, and high upfront instrument costs creates meaningful switching costs, but they are not significant enough to award the full company a moat.

In an industry where intangible assets and switching costs can support an economic moat, Revvity has consistently failed to generate ROICs above its weighted average cost of capital. The major exception was in 2020 and 2021 due to unprecedented demand for covid-19 testing, creating a temporary revenue and margin spike for Revvity. As pandemic-related sales dropped starting in 2022, returns quickly fell back.

Historically, acquisition and divestiture activities have weighed on ROICs. The firm’s largest acquisition, a $5.25 billion purchase of BioLegend in 2021, was the main reason for the approximate doubling of the company’s invested capital base. Furthermore, from 2017 to 2023, more than 75% of capital deployment went to M&As, with only a modest share directed toward dividends or share buybacks.

This strategy signals a rising invested capital base with uncertain returns. In our view, enough uncertainty is added to the potential for economic profits in the long term, which may prevent advantages in some of its businesses from digging a companywide moat.

Revvity possesses a well-entrenched niche in newborn screening and stands to benefit from growing menu expansion globally and expanding to emerging markets, particularly China and India.

The Biolegend acquisition added new products in high-growth areas, including biologics, cell and gene therapy, and single-cell analytics.

Euroimmun is positioned to be a strong growth driver, especially since it is the largest player in autoimmune diagnostics and has more product offerings from the recent IDS and Oxford Immunotec acquisitions.

Declining birthrates and overpopulation in China and India could slow Revvity's growth in diagnostics, particularly in newborn screening.

Despite its strong niche in services and preclinical drug discovery, the company’s prospects in its life sciences segment are somewhat limited, as it does not have a strong presence in stickier areas like drug production.

Although unlikely, players like Agilent and Waters could focus on the services business and take product and service market share from Revvity.