Life science tools and diagnostics companies are showing tentative signs of improvement after a challenging stretch, according to a Bernstein review prepared by Eve Burstein. The firm points to several early indicators that have strengthened in the past 12 months relative to the prior year - including new drug approvals, the start of clinical trials and funding flows from sources such as the NIH budget, licensing deals and pharma research and development spending.
Bernstein cautions, however, that while funding allocations have improved, that money has not yet fully translated into actual spending on tools and diagnostics. That gap creates ambiguity over when a broad-based recovery will materialize. Given the uneven nature of the signals, Bernstein believes the sector has likely reached a bottom but recommends focusing on names with identifiable, company-specific growth drivers rather than on exposure that depends solely on a generalized market rebound.
1. Guardant Health - Outperform; $175 price target; 28% upside
Bernstein expects Guardant Health to capture notable revenue upside from the G360 assay achieving ADLT status, a potential development it says is not fully reflected in consensus models. The firm is 6.6% above consensus for Guardant in 2027 and 12.2% above consensus in 2028. Recent regulatory progress includes FDA approval for the Guardant360 CDx test as a companion diagnostic for a specific HER2 lung cancer therapy. In addition, the American Cancer Society has recommended Guardant’s Shield blood test in its colorectal cancer screening guidance.
Bernstein also highlights margin upside tied to manufacturing transitions. The team estimates that switching to the NovaSeq X platform could deliver a 350-550 basis point total-company gross margin impact in 2026, an outcome Bernstein believes consensus is underestimating. Guardant is building a biobank through its Shield program that could enable rapid execution of an FDA-enabling study for multi-cancer detection, which Bernstein notes as an important strategic asset. The firm also flags Guardant as the most-shorted stock within its coverage universe.
2. Natera - Outperform; $310 price target; 19% upside
Bernstein views Natera as having a clear catalyst path to higher volumes and improved reimbursement in minimal residual disease, or MRD, testing. The firm expects PMDA reimbursement in Japan for Signatera during the second quarter with a commercial launch before year-end. Natera has submitted MolDx documentation for seven cancer types, which Bernstein anticipates could support average selling price expansion.
In the women’s health franchise, Bernstein points to enhancements to the Panorama prenatal test that improve performance at lower cell-free DNA levels, enabling reliable testing at eight weeks of gestation rather than previously at nine to ten weeks. A high-volatility milestone for Natera could come with the readout of the FIND-CRC colorectal cancer screening test, expected in early 2027; Bernstein believes the market has not meaningfully priced in a CRC screening test into current valuation. On margins, Bernstein notes the company has been actively managing gross margin dynamics and that the cost setup is favorable.
Recent company developments noted by Bernstein include regulatory approval in Japan for Signatera in colorectal cancer patients, representing the first PMDA-approved molecular residual disease test in Japan, and a collaboration with Aveta Biomics to use Signatera in a global Phase 3 head and neck cancer trial.
3. Waters Corporation - Outperform; $435 price target; 18% upside
Bernstein sees additional runway in the instrument replacement cycle for Waters. The firm estimates instrument growth at 5% in 2025, which it contrasts with a typical up-cycle that can deliver high-single-digit-plus growth for two or more years. Bernstein believes the market has not fully credited expected synergies from Waters’ deal with BD and argues that the company has demonstrated improved salesforce efficiency since CEO Udit Batra took the helm in 2020.
Waters’ mix of recurring revenue has increased materially following the BD transaction, rising to 70% of total revenue from 57% in 2024, and Bernstein notes that recurring revenue typically trades at a higher multiple. The analyst team expects reshoring benefits to begin to materialize around or ahead of the point when the replacement cycle moderates.
On corporate developments, Bernstein cites a strategic partnership between Waters and IMU Biosciences to build an AI-driven immunology platform, as well as Waters’ launch of a Coin Cell Differential Scanning Calorimeter aimed at battery safety testing.
4. Agilent Technologies - Outperform; $155 price target; 18% upside
Bernstein argues that, while Agilent’s pent-up demand story may be less obvious than Waters’, there remains meaningful runway within the instrument replacement cycle. Instrument growth from 2019 through 2025 measured about 5%, a pace Bernstein describes as comfortably below the company’s long-term average. Agilent’s first quarter 2026 book-to-bill ratio was above one for the ninth straight quarter, which Bernstein views as supportive of continued momentum.
Bernstein highlights a valuation gap between Agilent and Waters, with Agilent trading at approximately a three-turn discount when it historically trades on par; the firm expects that gap to narrow. Industrial and applied end markets are described as continuing to perform well, and Bernstein sees Agilent’s recent mergers and acquisitions activity as increasingly targeted toward assets that enable cross-selling.
Recent corporate moves called out include Agilent’s completion of the acquisition of Biocare Medical, a clinical pathology company, and a collaboration with OpenAI and Boston Consulting Group to deploy artificial intelligence solutions across its operations and products.
Across the four top picks, Bernstein’s selections are guided by discrete, company-specific catalysts - regulatory approvals, reimbursement pathways, instrument replacement dynamics and acquisition-driven recurring revenue - rather than broad sector exposure. That approach reflects Bernstein’s view that, although leading indicators of recovery have improved, the conversion of allocated capital into concrete spending remains incomplete.