PerkinElmer Remains Neutral - Analyst Blog

We reaffirm our Neutral recommendation on PerkinElmer (PKI). Both revenues and earnings for third-quarter 2010 beat the Zacks Consensus Estimate. On the positive side, PerkinElmer has established itself as the market leader, particularly in genetic screening segments, and holds one of the top two market share positions in several important subsets of the life sciences technology and genetic screening businesses.

PerkinElmer's revenue stream is geographically diversified with 60% of revenue in fiscal 2009 coming from overseas locations. The company has continued to gain momentum in important emerging markets such as China, India and Brazil in the current fiscal year.

PerkinElmer operates in a highly competitive industry characterized by rapid technological change and evolving industry standards. As a result, the company must make large investments in R&D in order to maintain a competitive pipeline. PerkinElmer competes with Thermo Fisher Scientific (TMO) among others.

PerkinElmer continues to execute well across all its product lines aided by rebounding markets and cost containment efforts. Its transfer of select manufacturing to China has expanded operating margins. PerkinElmer has increased its productivity and improved product mix in favor of higher value added products. This has led to higher operating margins.

The company is therefore positive that it will achieve its goal of 17.5% adjusted operating margin by fiscal 2014. A significant stream of recurring revenue is another pillar of strength for the company.

On the negative side, growth in life science technology and genetic screening is partly offset by the company's exposure to more cyclical end markets (non-healthcare end markets).

PerkinElmer's exposure to weak industrial demand, poor end market visibility and relatively instrument-heavy product mix might result in an unattractive risk-reward trade-off for the stock. The company's transformation of its portfolio has been on the slower side and its strategy has not been clarified. Our recommendation is supported by a short-term Zacks #3 Rank (Hold).

 
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