Shares of Avantor surged Monday as it digs in to reverse what activist investor Engine Capital says are years of "extreme shareholder value destruction."
New York-based Engine Capital owns about 3% of Avantor, a global supplier for the life sciences industry. Avantor sells products and services for laboratories.
But Avantor stock has underperformed its peers, Engine Capital said in a letter to the company's board, specifically calling out better growth from Thermo Fisher Scientific. The investor outlined a series of problems, including cost control and turnover issues, as well as poor capital allocation and succession planning.
"We believe that these are fixable issues," Evercore ISI analyst Vijay Kumar said in a note to clients. "Distribution by nature deals with low tech products & there is no reason for AVTR to underperform peers ... & is a tremendous value unlock (opportunity)."
Avantor stock jumped 5.2%, closing at 12.10. Shares have been on a downward trajectory in recent months. Since July 2024, Avantor shares have tumbled 57%, as of Friday's close.
Avantor's 'Self-Inflicted' Issues
Engine Capital says Avantor's issues are "self-inflicted." The investor wants to add new board members with experience in health care distribution, capital allocation and leadership at relevant companies. It sees a path to 100% upside in share price by the end of 2027.
"Despite its operational challenges and abysmal shareholder returns, Avantor continues to have significant strategic value, well in excess of current trading prices," Engine Capital said, pointing out a pair of takeover attempts the board rebuffed. Since then, shares have lost more of their value.
"Today, the Company is at a crossroads as it is clear that the status quo under the current Board cannot continue," Engine Capital said.
Engine Capital laid out a series of strategic initiatives to right Avantor's ship. Among them, the investor suggests Avantor improve its cost discipline and capital allocation, optimize the portfolio — which could involve exiting smaller geographies — improving turnover among executives and succession planning.
Is Massive Upside Ahead?
Avantor could see upside to the tune of 22 to 26 per share by the end of fiscal year 2027. Or, it could realize 17 to 19 a share in a sale, Engine Capital said.
Evercore's Kumar kept his outperform rating and 16 price target on Avantor stock.
"We do think leadership has been set in place ... and new CEO will have to take a look at (organization) structure & ensure that incentives are aligned," he said.
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