Morgan Stanley Ups the Ante on These 2 Life Science Tool Stocks

The broad healthcare sector accounts for roughly one-fifth of the U.S. economy and continues to expand. While most attention tends to go to the direct-care segment, the life-sciences industry is an equally critical pillar of the system. It spans everything from laboratory services to drug discovery, and its research and development efforts are major drivers of progress in patient care.

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Grand View Research estimated the life sciences market at $167.82 billion worldwide in 2004, and expects it to reach just over $401 billion by 2033 – indicating a 10.2% CAGR over the 10-year period. An ever-increasing demand for new research instruments along with growing investments in biotech and pharmacological research are among the biggest drivers of the life sciences industry.

Morgan Stanley analyst Kallum Titchmarsh shares that constructive view and is particularly bullish on core tools – the essential lab technologies that underpin nearly all life-science workflows. These include instruments and systems used for sample preparation, gene sequencing, cell analysis, imaging, and other foundational research tasks.

"With end market bright spots beginning to emerge and plenty of catalysts sitting in the pipeline across our coverage, we think there's lots to like in the space entering 2026… For core tools, we think there are a number of bright spots heading into the coming year. Firstly, we expect pharma R&D budgets to remain robust, supported in part by recent developments around MFN (Most Favored Nation). Our CRO survey also suggests healthy R&D budget increases across various customer groups, providing more opportunities to add/replace equipment where needed longer-term," Titchmarsh opined.

The Morgan Stanley analyst goes on to up the ante on two top names in the life-science tools space, with a particular focus on core tool providers. We've used the TipRanks database to dig into his picks and explore why these plays look so compelling today.

Danaher (DHR)

Danaher, the first life sciences stock we'll look at, is a large-cap leader in the field. This $160 billion company provides a wide range of science and technology services in the fields of biotech and diagnostics in the overall medical and life sciences research sectors. The firm traces its roots back to 1969 and keeps its headquarters in Washington DC, a location that allows management to keep its finger on the pulse of science and biotech policymaking.

The company operates through three clear business divisions. The Life Sciences segment focuses on developing new innovations in medicine, including disease treatments, new therapies and vaccines, and improving food and water testing, but also includes such other important health matters as improving fluid filtration on commercial airplanes. The overall thrust of Danaher's life sciences business is to provide customers with the tech and the tools to improve their work and their outcomes.

Next on the list is Danaher's Diagnostics business, which is focused on developing the hardware and software tools required by today's advanced medical labs. These are the necessary foundations that medical investigators use to improve their diagnostic work, leading to faster and more accurate test results and a better understanding of patients' needs. Danaher is working to improve confidence in the diagnostic field, always a matter of urgent importance for healthcare providers.

The company's fastest-growing division is Biotechnology. Under this rubric, Danaher provides tech, services, and expertise to its clientele: workers and providers in the healthcare field who are developing new medications, treatments, and procedures. Danaher supports critical research in emerging biotech as well as large-scale biopharmaceutical manufacturing.

On the financial side, Danaher reported better-than-expected results in its last quarterly release, which covered 3Q25. In the quarter, the company had a top line of $6.1 billion, up more than 4% year-over-year and $55 million above the forecast. At the bottom line, Danaher's non-GAAP EPS figure of $1.89 was 17 cents per share better than the estimates. In addition, Danaher realized free cash flow of $1.4 billion in the third quarter.

DHR is a top pick in the life science field for analyst Titchmarsh. In his write-up of the stock for Morgan Stanley, he says: "We believe DHR has positioned its portfolio to attractive end markets, which despite experiencing notable volatility in recent years, should enable durable long-term growth. Following Q3 results, we now believe Street numbers look sensible for 2026 and to us, this is the cleanest setup entering a new year for some time… We view DHR as a best-in-class innovator and management's track record on asset integration likely bodes well for a more favourable deal environment. Valuation on the whole screens attractive relative to peers and history, leaving us bullish on the name."

To this end, Titchmarsh assigns DHR an Overweight (i.e., Buy) rating, and a $270 price target that suggests a one-year gain of 18%. (To watch Titchmarsh's track record, click here)

The 14 recent ratings on DHR shares split 11 to 3 in favor of Buys over Holds, for a Strong Buy consensus rating. The shares are trading for $228.46, and their $246.09 average target price implies an upside of ~8 % on the one-year horizon. (See DHR stock forecast)