Company Reports

No-moat Evotec is facing a challenging environment due to the slowdown in early-stage research and development spending. While total revenue rose 2% year over year in the first half of 2024, primarily driven by strong performance in the Just-Evotec Biologics segment, this top-line growth was partly offset by ongoing difficulties in the shared R&D segment, which struggled with stagnant spending by biotechnology clients. We keep our fair value estimates of EUR 8.50 and $4.63 per share. Shares currently trade about 30% below our fair value estimate.

No-moat Evotec has revised its 2024 guidance following a challenging first half, which saw slower revenue growth in its shared research and development segment. Consequently, the company has lowered its revenue forecast to between EUR 790 million-EUR 820 million, reflecting a low- to mid-single-digit percentage increase compared with the previous projection of low-double-digit growth. We've updated our model to incorporate the new guidance, and we have decreased our fair value estimate to EUR 8.50 per share from EUR 14.

Evotec is a drug discovery partnership firm that has a contract development and manufacturing organization, or CDMO, business, in addition to an innovative drug development program focused on collaboration with clients. The firm offers services across a variety of therapeutic areas and serves a diverse client base of large and midsize pharmaceutical and biotechnology companies. Following a recent period of investment that has weighed on returns, Evotec appears well positioned to mature and stabilize its business as its strategic growth initiatives materialize.

Evotec is a drug discovery partnership firm that has a contract development and manufacturing organization, or CDMO, business, in addition to an innovative drug development program focused on collaboration with clients. The firm offers services across a variety of therapeutic areas and serves a diverse client base of large and midsize pharmaceutical and biotechnology companies. Following a recent period of investment that has weighed on returns, Evotec appears well positioned to mature and stabilize its business as its strategic growth initiatives materialize.

No-moat Evotec’s first-quarter results were roughly as expected, and we maintain our fair value estimates of EUR 14 per share and $7.60 per share. Revenue declined 2% year over year, as strength in the biologics manufacturing business was largely offset by continued headwinds from weak biopharmaceutical customer demand and a tough comparable period in the drug discovery and partnership businesses. Shares are currently trading in 4-star territory, about 31% below our fair value estimate.

Evotec is a drug discovery partnership firm that has a contract development and manufacturing organization, or CDMO, business, in addition to an innovative drug development program focused on collaboration with clients. The firm offers services across a variety of therapeutic areas and serves a diverse client base of large and midsize pharmaceutical and biotechnology companies. Following a recent period of investment that has weighed on returns, Evotec appears well positioned to mature and stabilize its business as its strategic growth initiatives materialize.

No-moat Evotec’s fourth quarter and full-year 2023 results landed roughly as we expected, and we are maintaining our fair value estimates of EUR 14 per share and $7.60 per share. The firm’s top-line growth was negatively affected by lost productivity due to a cyberattack and softer demand trends from biotechnology customers. Management announced a strategic reprioritization of the business with an emphasis on improving profitability and provided qualitative initial guidance for 2024. After digesting the tough 2023 results and news of the reassessed outlook, investors sent shares tumbling by over 30%.

We are initiating coverage on Evotec, a drug discovery and manufacturing organization that also develops proprietary pipeline assets for partnership opportunities with customers. We assign the firm a no-moat rating, as its recent investment for growth holds returns below its cost of capital for most of the forecast period. Our fair value estimates are EUR 14 per share and $7.60 per share, at a ratio of two American Depositary Shares to one ordinary share. At current prices, shares look fairly valued.

Evotec is a drug discovery partnership firm that has a contract development and manufacturing organization, or CDMO, business, in addition to an innovative drug development program focused on collaboration with clients. The firm offers services across a variety of therapeutic areas and serves a diverse client base of large and midsize pharmaceutical and biotechnology companies. Following a recent period of investment that has weighed on returns, Evotec appears well positioned to mature and stabilize its business as its strategic growth initiatives materialize.