Lonza Group (LZAGY +1.10%) isn't in the limelight very much. However, Lonza is a relatively large company that is a key player in making COVID-19 vaccines. In this Motley Fool Live video recorded on Nov. 3, 2021, Motley Fool contributors Keith Speights and Brian Orelli discuss whether investors should have Lonza on their watchlists.
Keith Speights: Brian, one final topic before we get to questions. Last week, one of our viewers, Mabel, asked us about Lonza. It's a Swiss chemicals and biotech company. At the time, neither one of us was very familiar with Lonza. So we had to punt on Mabel's question, but we said that we would revisit it this week, and here we are, Mabel.
Brian, what's your take on Lonza? Is this a stock that investors should have on their radar screens?
Brian Orelli: Yes, this is a Swiss contract manufacturer. Basically, they make drugs for other companies. They have lots of capabilities at 37 different sites. They can make small molecule drugs, they can make biologics. They can make cell and gene therapies. They have pill technologies to make immediate release pills and extended-release pills. They have mRNA technology and they're helping make Moderna's vaccine.
First-half sales were up 14.7 percent at constant exchange rates. It's obviously a sticky business with high switching costs. You basically have to get regulators' approval to change manufacturing. That's costly and time-consuming.
I think that if they get a contract for a drug, they're going to keep making it as long as the drug is doing well in the marketplace, which they obviously don't have any control over. But it's a capital-intensive business, 25 percent of the sales this year is we're going to CapEx.
Growth, I think is likely to be capped at its ability to increase its capacity and margins are going to be important for this company. You have to watch closely their costs and hopefully if those are going slower than their revenue, then their earnings per share will grow faster than revenue.
I think if you want to invest in the company, that's probably one of the main things that you should be looking for is improving margins.
Speights: Do you think this is a stock that most investors would want to be watching or maybe only certain investors?
Orelli: It's not my kind of company, but I think it's probably a very stable company. I would put it more like a large pharmaceutical company than a biotech. But maybe it might be even more stable than a large pharmaceutical company because probably, there's a lot of stickiness, so loss of sales of drugs is probably not going to hurt the company as much and you don't have that binary risk of clinical trial failures. That probably makes it a little bit more stable than your average pharmaceutical company.
