Avantor, Inc. (AVTR): A Turnaround Tale in Lab Solutions?

Investors seeking a bargain in the life sciences tools sector may want to look no further than Avantor, Inc. (NYSE:AVTR), which trades at a steep valuation discount to peers while implementing cost cuts and strategic shifts to counter declining sales. The stock's current P/E ratio of 13.34—nearly half that of Danaher (DHR, 26.55) and far below Thermo Fisher Scientific (TMO, 33.23)—paints a compelling picture of a misunderstood opportunity. But can the company's cheap valuation and new leadership team reverse its trajectory? Here's why now could be the time to consider a position.

Why Avantor Is Dirt Cheap—and Why It Might Stay That Way

The market isn't wrong to doubt Avantor's prospects. First-quarter 2025 revenue fell 6% year-over-year to $1.58 billion, driven by softer demand in education/government sectors and bioscience production. The company's revised 2025 guidance—a mere -1% to +1% organic revenue growth—reflects lingering challenges. Even its adjusted EBITDA margins have narrowed, and free cash flow dipped to 5.1% of revenue, down from 6.4% a year earlier.

But here's the key: these metrics already reflect the worst-case scenario. Avantor's valuation is pricing in a worst-case outcome, with its shares down nearly 20% since CEO Michael Stubblefield announced his exit in April 2025. At current levels, the stock trades at just 9.6x forward earnings, compared to the sector's average of 20x. This is a stark discount for a company serving over 300,000 customer locations in 180 countries—a footprint that rivals its peers.

The Catalysts for a Turnaround

The path to recovery hinges on three pillars:
1. Cost Cuts and Operational Efficiency: Avantor has doubled down on its cost-transformation program, targeting $400 million in annual savings by 2027. This includes streamlining supply chains, digitizing its e-commerce platform (handling 60% of orders), and slashing overhead. With margins already under pressure, these cuts are critical—but they're also achievable given the company's size and scale.
2. New Leadership and Strategic Focus: The board's search for a CEO—led by an executive search firm—suggests it's prioritizing a candidate with a proven growth track record. Stubblefield's decade-long tenure, while transformative, ended amid execution missteps. A fresh leader could refocus on high-margin segments like biopharma contract manufacturing, where Avantor's expertise in lab consumables and reagents is unmatched.
3. Sector Tailwinds Ahead: The lab solutions market is projected to grow at a 5% CAGR through 2030, fueled by demand for drug development and diagnostics. While Avantor's near-term struggles are real, its position in this expanding sector—alongside partnerships with major pharmaceutical clients—could position it to rebound once operational issues are resolved.

Risks and Why They're Overblown

Bearish arguments center on trade tensions, sluggish R&D spending, and debt management. The company's $3.3 billion debt load, while manageable, limits its ability to invest in growth. Meanwhile, tariffs on Chinese imports have already been factored into guidance.

But here's the overlooked angle: Avantor's stock is already pricing in these risks. Even if the company merely stabilizes its revenue trajectory and meets its cost targets, the upside is significant. A return to low-single-digit revenue growth—a modest goal given its market position—could send the stock soaring.

The Case for a Gradual Entry

This isn't a buy-and-forget name. Investors should dollar-cost average into AVTR, starting with a 10% position and adding on dips below $12.50. Key catalysts to watch include:
- The new CEO's first 100 days, focusing on margin improvements and client retention.
- Q3 2025 earnings, where signs of stabilization in bioscience production or education/government demand could trigger a rebound.
- Debt reduction progress, with a target of lowering leverage to 3.0x EBITDA by 2026.

However, historical performance of this strategy suggests caution. From 2020 to 2024, buying AVTR on the announcement date of Q3 earnings and holding for 30 days resulted in an average return of just 0.32%, significantly underperforming the broader market's 99.02% return over the same period. The strategy also faced a maximum drawdown of -30.2%, indicating high risk without reward. This underscores the need for patience and the importance of waiting for concrete signs of stabilization beyond the earnings announcement itself before committing further capital.

Final Take

Avantor's valuation is as low as its stock price—$12.55 as of May 2025—and its challenges are well telegraphed. Yet the company's global scale, critical role in lab solutions, and undemanding valuation make it a rare value play in a high-flying sector. With a new CEO on deck and cost cuts in motion, the setup is ripe for a turnaround. For investors willing to bet on execution, now is the time to start nibbling.

Action: Buy 10% of your target position at current levels. Add another 10% if Q3 earnings show stabilization (after the announcement), and go all-in if the new CEO delivers a credible growth plan by year-end.

This analysis is for informational purposes only and does not constitute financial advice. Always conduct your own research before making investment decisions.