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Barclays sees four catalysts for an ‘overlooked’ investment idea
There are a number of catalysts ahead for fertility stocks and many investors may be missing out, according to Barclays. The bank recently analyzed stocks tied to the theme and spoke with investors about it. “Our conversations with investors suggest that the fertility theme has been rather overlooked so far,” analyst Laia Marin wrote in a note last week, the second part of a two-part look at fertility stocks. But Marin sees an improvement in the investment narrative as global fertility rates decline more rapidly than expected. “In addition to the demographic effects of an aging population , cultural shifts such as the increased presence of women in the workforce continue to be a key driver of lower fertility rates, with one in six people worldwide affected by infertility,” Marin wrote in a late July note, citing data from the World Health Organization. “In our view, this structural backdrop will increase demand for fertility treatment, particularly in countries where populations have already peaked (e.g. Europe, China, Japan, South Korea, Russia) and in those where fertility rates remain extremely low despite the overall population being expected to grow (e.g. the U.S.),” she added. Four key catalysts Fertility stocks span different sectors, ranging from insurance provider Progyny to pharmaceutical maker Organon , a women’s health spin-off from Merck in 2021. PGNY 1Y mountain Progyny one-year performance Barclays sees four key catalysts for the group. For one, there are broader fertility policy approaches emerging around the globe, Marin said. Specifically, policies in countries where the population has already peaked — such as Europe, China and Japan — could play a key role in bringing fertility rates back to replacement levels of 2.1 births per woman. This could also apply to countries, like the United States, which have populations that are expected to grow but have very low fertility rates. “Historically, government policies attempting to raise birth rates have had limited effectiveness, but encouragingly broader policies beyond financial incentives are emerging, which could prove more successful going forwards,” Marin said. That includes a focus on family planning considerations, like parental leave, as well as efforts related to childcare and access. Second, employers are increasingly offering fertility health benefits, she pointed out. Some 43% of U.S. companies with at least 500 employees covered vitro fertilization (IVF) in 2022, up from 27% in 2020, according to Mercer , an employee benefits consulting firm. In addition, there has been higher utilization of assisted reproductive technologies (ART) with improved success rates, Marin noted. In 2019, according to the latest data available from the International Committee for Monitoring Assisted Reproductive Technologies , some 3.4 million ART cycles were performed in 81 countries. That’s about a 65% increase from 2017, Marin said. Lastly, FemTech startups continue to proliferate, with several unicorns emerging, she said. There have also been some FemTech initial public offerings in recent years, such as Progyny. “We are now seeing a new wave of startups that are exclusively targeting fertility products and services, including sperm- and egg-freezing services, hormone-testing systems and monitoring platforms,” Marin said. “These companies have gained [venture capital] investors’ interest and continue to attract substantial capital, with Pitchbook data suggesting that c.$1.75bn has been invested across more than 70 FertilityTech companies.” Stocks to play the theme There are a number of ways to play the fertility theme, including companies in the pre-care phase that focus on bolstering fertility levels and those in the care phase, who aim to improve pregnancy outcomes. Some have high exposure to the theme, while others have medium- to low exposure. “Thematic exposure does vary by sector. While there are a few listed pure-play IVF companies, market cap remains fairly restrictive,” Marin said, referring to companies too small for most major instituional investors. There are some names with high exposure, like Progyny and Organon, and others that are companies with more diversified portfolios. “Most healthcare and diagnostics players exposed to fertility have very broad portfolios, with the fertility testing segment representing a low to medium portion of revenues,” she noted. Barclays has an overweight rating on fertility benefits provider Progyny and a $30 price target, implying 38% upside from Monday’s close. The stock has been knocked down this year on slowing growth trends, Barclays analyst Stephanie Davis wrote in an Aug. 5 note. But she believes Progyny is in the early days of a $13 billion-plus opportunity. “Despite recent accelerated adoption trends, we believe fertility remains a meaningfully underpenetrated market with a number of tailwinds fueling sustainable double-digit growth,” Davis said. “Further, PGNY remains a leader in this market, and we believe it is poised to consolidate share.” The stock has an average analyst rating of overweight and nearly 38% upside to the average analyst price target, according to FactSet. Meanwhile, health-care company Organon focuses on contraception and fertility treatments. Its medicines Ganirelix, Follistim and Pregnyl (only available in the U.S.) are used to treat infertility. Barclays also has an overweight rating on the Jersey City, N.J.-based company, and a $26 price target, suggesting 13% upside from Monday’s close. The recommendation is in line with the average rating on FactSet. However, shares have soared almost 60% this year, so there is about 1% downside to the average price target. While Barclays doesn’t cover Natera , the company has a high exposure to the fertility theme. Revvity , which offers reproductive health screenings, has medium exposure to the theme. It is rated equal weight at Barclays. Illumina and Labcorp are well diversified companies with low exposure to fertility, according to Marin. Among the stocks that fall under the care phase are medical device maker Cooper Companies . The stock, which is not covered by Barclays, has an average rating of overweight and 17% upside to the average price target, according to FactSet. Two health-care facilities, Pediatrix Medical Group and HCA Healthcare , also fit the investment thesis. The former has a high and the latter low exposure. Pediatrix has an average analyst rating of hold, while HCA has an average rating of overweight, according to FactSet. Abbott Laboratories , which conducts fertility and pregnancy testing, has a medium exposure to the theme. Barclays rates it overweight, in line with the average analyst rating, FactSet data shows. It has 11% upside to the average analyst price target.
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