Tecan Group shares plunge 12% on downbeat trading update and revised outlook

Investing.com -- Tecan Group AG (SIX:TECN ) shares plummeted by 12.7% following its trading update in which the company adjusted its full-year 2024 sales and margin forecasts, marking a shift from its earlier expectations. 

This downward revision underscores the growing challenges the company faces in an increasingly complex economic landscape.

Tecan projected a sales decline of 12% to 14% for fiscal year 2024, a sharp contrast to its prior guidance, which anticipated stable revenues with a modest single-digit decline. 

Additionally, the company revised its expected EBITDA margin downward to a range of 16% to 18%, down from an earlier forecast of 18% to 20%. 

These adjustments reflect the impact of ongoing order delays, which have negatively influenced demand for its products, particularly in the second half of the year.

A critical factor in Tecan's diminished outlook has been the persistent weakness in its Life Science segment, especially in China. 

The company reported that customers in this region have delayed their orders, a trend believed to be influenced by anticipation of an upcoming stimulus program. 

Additionally, bio-pharmaceutical clients have also postponed projects, exacerbating the challenges faced by Tecan. In its Partnering segment, which involves the production of instruments for other businesses, the company is witnessing similar adverse trends related to capital expenditures.

Analysts at UBS flagged that Tecan had previously hoped for a recovery in orders during the latter half of 2024. However, the anticipated resurgence has not materialized, leading to a more cautious approach moving forward. 

While Tecan remains committed to its medium-term growth targets, including aspirations for high single-digit sales growth and a gradual expansion of margins over the next few years, the immediate outlook remains fraught with uncertainties.

The current consensus from market analysts indicates that Tecan's reported sales growth could hover around -5%, translating to a -3% decline when adjusted for local currencies. 

With the updated guidance suggesting potential earnings per shareestimates for FY24 could be reduced by 30% to 40%, UBS warns that this outlook creates substantial downside risks for investors.

Given the challenging environment, UBS has lowered its price target for Tecan shares to CHF 380, relying on a discounted cash flow analysis that incorporates a terminal growth rate of 3%, a terminal EBIT margin of 15.5%, and a weighted average cost of capital of 6.5%. 

This adjustment in target price reflects the analysts' cautious stance towards the company’s near-term performance, indicating a potential for continued volatility in Tecan's stock as it navigates these obstacles

Source: Investing.com