Avantor (AVTR)

Life sciences company Avantor (NYSE:AVTR) fell short of the market’s revenue expectations in Q1 CY2025, with sales falling 5.9% year on year to $1.58 billion. Its non-GAAP profit of $0.23 per share was in line with analysts’ consensus estimates.

Company Overview

With roots dating back to 1904 and embedded in virtually every stage of scientific research and production, Avantor (NYSE:AVTR) provides mission-critical products, materials, and services to customers in biopharma, healthcare, education, and advanced technology industries.

The life sciences subsector specializing in research tools and consumables enables scientific discoveries across academia, biotechnology, and pharmaceuticals. These firms supply a wide range of essential laboratory products, ensuring a recurring revenue stream through repeat purchases and replenishment. Their business models benefit from strong customer loyalty, a diversified product portfolio, and exposure to both the research and clinical markets. However, challenges include high R&D investment to maintain technological leadership, pricing pressures from budget-conscious institutions, and vulnerability to fluctuations in research funding cycles. Looking ahead, this subsector stands to benefit from tailwinds such as growing demand for tools supporting emerging fields like synthetic biology and personalized medicine. There is also a rise in automation and AI-driven solutions in laboratories that could create new opportunities to sell tools and consumables. Nevertheless, headwinds exist. These companies tend to be at the mercy of supply chain disruptions and sensitivity to macroeconomic conditions that impact funding for research initiatives.

Avantor competes with other life sciences suppliers including Thermo Fisher Scientific (NYSE:TMO), Danaher Corporation (NYSE:DHR), MilliporeSigma (a division of Merck KGaA), and Bio-Rad Laboratories (NYSE:BIO), as well as more specialized suppliers in specific product categories.

Larger companies benefit from economies of scale, where fixed costs like infrastructure, technology, and administration are spread over a higher volume of goods or services, reducing the cost per unit. Scale can also lead to bargaining power with suppliers, greater brand recognition, and more investment firepower. A virtuous cycle can ensue if a scaled company plays its cards right.

With $6.69 billion in revenue over the past 12 months, Avantor has decent scale. This is important as it gives the company more leverage in a heavily regulated, competitive environment that is complex and resource-intensive.

A company’s long-term sales performance can indicate its overall quality. Any business can have short-term success, but a top-tier one grows for years. Over the last five years, Avantor grew its sales at a tepid 1.9% compounded annual growth rate. This was below our standards and is a rough starting point for our analysis.

We at StockStory place the most emphasis on long-term growth, but within healthcare, a half-decade historical view may miss recent innovations or disruptive industry trends. Avantor’s performance shows it grew in the past but relinquished its gains over the last two years, as its revenue fell by 4.6% annually.

We can better understand the company’s sales dynamics by analyzing its organic revenue, which strips out one-time events like acquisitions and currency fluctuations that don’t accurately reflect its fundamentals. Over the last two years, Avantor’s organic revenue averaged 4.4% year-on-year declines. Because this number aligns with its normal revenue growth, we can see the company’s core operations (not acquisitions and divestitures) drove most of its results.

This quarter, Avantor missed Wall Street’s estimates and reported a rather uninspiring 5.9% year-on-year revenue decline, generating $1.58 billion of revenue.

Looking ahead, sell-side analysts expect revenue to remain flat over the next 12 months. Although this projection suggests its newer products and services will catalyze better top-line performance, it is still below the sector average.

Adjusted operating margin is a key measure of profitability. Think of it as net income (the bottom line) excluding the impact of non-recurring expenses, taxes, and interest on debt - metrics less connected to business fundamentals.

Avantor has managed its cost base well over the last five years. It demonstrated solid profitability for a healthcare business, producing an average adjusted operating margin of 17.6%.

Looking at the trend in its profitability, Avantor’s adjusted operating margin decreased by 1.1 percentage points over the last five years. This performance was caused by more recent speed bumps as the company’s margin fell by 3 percentage points on a two-year basis. We’re disappointed in these results because it shows its expenses were rising and it couldn’t pass those costs onto its customers.

This quarter, Avantor generated an adjusted operating profit margin of 15.4%, in line with the same quarter last year. This indicates the company’s overall cost structure has been relatively stable.

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

Avantor’s EPS grew at an unimpressive 4.9% compounded annual growth rate over the last five years. This performance was better than its flat revenue, but we take it with a grain of salt because its adjusted operating margin didn’t expand and it didn’t repurchase its shares, meaning the delta came from reduced interest expenses or taxes.

In Q1, Avantor reported EPS at $0.23, up from $0.22 in the same quarter last year. This print was close to analysts’ estimates. Over the next 12 months, Wall Street expects Avantor’s full-year EPS of $1.01 to grow 8.7%.

Although earnings are undoubtedly valuable for assessing company performance, we believe cash is king because you can’t use accounting profits to pay the bills.

Avantor has shown impressive cash profitability, giving it the option to reinvest or return capital to investors. The company’s free cash flow margin averaged 10.5% over the last five years, better than the broader healthcare sector.

Taking a step back, we can see that Avantor’s margin dropped by 1.1 percentage points during that time. Continued declines could signal it is in the middle of an investment cycle.

Avantor’s free cash flow clocked in at $81.3 million in Q1, equivalent to a 5.1% margin. The company’s cash profitability regressed as it was 1.2 percentage points lower than in the same quarter last year, suggesting its historical struggles have dragged on.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

Avantor’s management team makes decent investment decisions and generates value for shareholders. Its five-year average ROIC was 7.6%, slightly better than typical healthcare business.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Over the last few years, Avantor’s ROIC averaged 1.4 percentage point decreases each year. We like what management has done in the past, but its declining returns are perhaps a symptom of fewer profitable growth opportunities.

Avantor reported $315.7 million of cash and $4.11 billion of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $1.19 billion of EBITDA over the last 12 months, we view Avantor’s 3.2× net-debt-to-EBITDA ratio as safe. We also see its $209.4 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

We struggled to find many positives in these results. Its organic revenue missed and its revenue fell short of Wall Street’s estimates. Overall, this was a softer quarter. The stock remained flat at $15.35 immediately after reporting.

Updated: June 11, 2025 at 12:09 AM EDT

We think that the latest earnings result is only one piece of the bigger puzzle. If you’re deciding whether to own Avantor, you should also grasp the company’s longer-term business quality and valuation.

Avantor’s business quality ultimately falls short of our standards. For starters, its revenue growth was uninspiring over the last five years, and analysts expect its demand to deteriorate over the next 12 months. And while Avantor’s sturdy operating margins show it has disciplined cost controls, its organic revenue declined.

Avantor’s P/E ratio based on the next 12 months is 12.5x. Beauty is in the eye of the beholder, but we don’t really see a big opportunity at the moment. We're fairly confident there are better investments elsewhere.

Wall Street analysts have a consensus one-year price target of $17.15 on the company (compared to the current share price of $13.69).

Although the price target is bullish, readers should exercise caution because analysts tend to be overly optimistic. The firms they work for, often big banks, have relationships with companies that extend into fundraising, M&A advisory, and other rewarding business lines. As a result, they typically hesitate to say bad things for fear they will lose out. We at StockStory do not suffer from such conflicts of interest, so we’ll always tell it like it is.