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Analyst Suggests Life Technologies Could Be LBO Target

NEW YORK (GenomeWeb News) – Macquarie Capital analyst Jon Groberg issued a research note on Life Technologies today saying that the firm is "the most undervalued asset in the Life Sciences space" and suggested it could be the target of a leveraged buyout.

Groberg reiterated his Outperform rating on Life Tech's stock, but he lowered the 12-month target price to $59 from $65, "as we use a lower target multiple given the market pullback and uncertain federal funding outlook." He also lowered the firm's 2011 earnings per share estimate to $3.73 from $3.75

With the recent pullback in its stock price, Life Technologies "screens as an attractive investment" from a leveraged buyout perspective, Groberg said. He added that the firm has a stable revenue base and free cash flow generation, which "should draw the interest of investors willing to wait while federal funding levels rebase."

Groberg said that Macquarie's analysis suggests that private investors could pay a 60 percent premium to Life Tech's current stock price — it closed at $35.65 on the Nasdaq yesterday — and still reap a 20 percent internal rate of return on the investment.

Late last month Life Tech reported second-quarter non-GAAP revenue growth of 4 percent, falling short of Wall Street's expectations on the top and bottom line. Life Technologies Chairman and CEO Greg Lucier cited "budget pressure on academic and government funded research in the US and Europe, the lingering effects of the Japan earthquake on the 5500 [Series Genetic Sequencer] launch, and a temporary slowdown in our China business resulting from the evolution of our commercial strategy," as the primary reasons for the slow growth.

While he expects a lack of stimulus spending to be a headwind for Life Tech, Groberg noted that the underlying 2012 NIH budget is "unlikely to be down significantly."