RVTY: Why Diagnostics and Software Growth Justifies a Buy Despite Tariff Headwinds

In a world where macroeconomic volatility and trade tensions dominate headlines, Revvity (RVTY) is proving that strategic execution and resilient business models can triumph over headwinds. With software revenue surging over 20% year-on-year, diagnostics expanding at 5%, and a forward P/E of just 17.6x—far below its peers—the company presents a compelling valuation-driven opportunity. While tariffs and academic spending headwinds loom, Revvity’s playbook of innovation, margin discipline, and share repurchases positions it to deliver outsized returns as macro risks subside.

The Software Engine: A High-Growth Flywheel

At the core of Revvity’s renaissance is its Signals software division, which now accounts for 8% of total revenue and is projected to grow another 20% in 2025. This segment isn’t just a side hustle; it’s a recurring revenue powerhouse with 33% of its portfolio SaaS-based. New product launches like Signals One (an AI-driven data platform) and LabGistics (logistics software for labs) are expanding into high-margin scientific workflow markets, while net retention rates remain robust.

The software division’s contribution to profitability is equally striking. With its recurring revenue model and low incremental costs, it’s driving margin expansion across the business. For instance, the company’s operating margin rose to 10.9% in Q1—up from 6.8% a year earlier—a clear sign that software’s scalability is unlocking value.

Diagnostics Resilience: More Than Just Testing

While software steals headlines, Revvity’s Diagnostics segment is quietly outperforming. Q1 revenue grew 5% organically, fueled by specialty diagnostics (e.g., reproductive health and newborn genomic screening via its partnership with Genomics England) and the FDA’s recent approval of an automated T-SPOT TB testing platform. This latter development is critical: the U.S. alone accounts for over 50% of global latent TB testing, and automation could boost lab efficiency while reducing costs—a win-win for Revvity’s margins.

The diagnostics segment also demonstrates geopolitical resilience. Despite China’s low-single-digit growth, its operations remain local and insulated from trade tensions. Meanwhile, partnerships like Genomics England’s UK newborn sequencing program are creating recurring revenue streams, further diversifying the company’s customer base.

Tariff Mitigation: A Playbook for Survival

Let’s address the elephant in the room: tariffs. Revvity faces $135 million in potential tariff impacts from U.S.-China and EU-U.S. trade disputes. But management isn’t waiting for policymakers—they’re acting. By shifting manufacturing to neutral jurisdictions, renegotiating supplier contracts, and implementing temporary pricing adjustments, they expect to neutralize most of the tariff drag by mid-2025.

The financial impact? A mere 60 basis points hit to net margins for the full year—a fraction of the initial threat. Even in Q2, the hardest-hit quarter, management reaffirmed full-year EPS guidance of $4.90–$5.00, citing tax planning and forex tailwinds to offset the pain.

Valuation and Catalysts: Why Now is the Time to Buy

At a forward P/E of 17.6x, Revvity trades at a discount to its peers in life sciences and diagnostics. This valuation overlooks three critical catalysts:
1. Margin Expansion: As tariffs are neutralized and software scale accelerates, operating margins could approach 12–13% within two years.
2. Buybacks: The company has reduced its share count by 6% since mid-2023 via $154 million in Q1 repurchases alone. With $2.0–2.1 billion in cash, there’s ample room to continue this accretive strategy.
3. Academic Demand Recovery: While U.S. academic spending remains weak, Revvity’s software and diagnostics are less cyclical. As government funding stabilizes, this could add an upside surprise.

Conclusion: A Rare Blend of Growth and Value

Revvity is a company in transition—from a traditional diagnostics player to a hybrid software- and science-driven powerhouse. Its software division’s growth, diagnostics’ margin resilience, and proactive tariff mitigation all signal that the worst is behind it. With a P/E that doesn’t yet reflect its margin trajectory and a buyback machine at work, RVTY is primed to outperform as macro clouds clear.

Investors who demand both growth and value—and are willing to look past near-term noise—should consider this stock now. The question isn’t whether Revvity can navigate tariffs; it’s whether they can afford to miss the recovery when it comes.

Risk Disclosure: The analysis above is for informational purposes only and does not constitute financial advice. Investors should conduct their own research or consult a licensed professional.