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Citi Downgrades Several Life Science Tools Vendors, Citing End Market Concerns

NEW YORK (GenomeWeb News) – Citi Investment Research & Analysis today downgraded a number of life science tools firms saying end market weakness is expected to continue through 2012.

In a research report, analyst Amit Bhalla said the academic/government market will face pressure while pharma/biotech will see headwinds for the next year, limiting growth opportunities for tools vendors.

Thermo Fisher Scientific was Bhalla's top pick. While he reduced the target price on its stock to $64 from an earlier estimate of $77, he maintained a Buy rating.

He also raised his 2011 EPS estimate for Thermo to $4.20 from $4.13 to account for the recently closed Phadia acquisition and raised 2012 EPS estimates to $4.90 from $4.70.

"[W]e believe [Thermo Fisher] remains most diversified in end markets and geography and offers continued earnings expansion through new product launches, [the] recent acquisition of Dionex and Phadia, and continued" expansion outside of the US, Bhalla said.

He downgraded Illumina to Hold from Buy and slashed the price target on its stock to $44 from $90. He also lowered the 2011 EPS estimate to $1.50 from $1.55 and the 2012 EPS estimate to $1.75 from $2.

Following Thursday's announcement from Illumina that its preliminary third-quarter revenues would fall short of consensus Wall Street estimates, Bhalla further reduced 2011 EPS estimates to $1.30 and 2012 EPS estimates to $1.58.

He also further shaved the target price to $32, but maintained the Hold rating.

The reduced EPS is due to uncertainty and headwinds in academic/government funding and Illumina's dependence on that market, which Bhalla estimates comprises about 80 percent of the company's total revenues.

Illumina's "exposure to the academic/government end market will pressure earnings despite the launch of MiSeq and a product ramp in HiSeq and remain a headwind," he said.

Bhalla also downgraded Life Technologies to Hold from Buy and lowered the price target to $43 from $53. His EPS estimate for 2011 was unchanged at $3.73, but was lowered for 2012 to $3.90 from $4.10.

He also cited concerns for the company stemming from an anticipated tougher academic/government end market, as well as potentially soft earnings in 2012. But, he added that "molecular testing growth in applied end markets and the Ion [Torrent] PGM launch could offset some of those headwinds."

For Waters, Bhalla maintained a Hold rating, but reduced the price target on its stock to $83 from $99. He kept his 2011 EPS estimate at $4.85 and 2012 EPS estimate at $5.50, and said that new product launches in its portfolio of mass spectrometers and liquid chromatography systems could provide some growth in Q3 2011.

Bhalla downgraded Becton Dickinson to Hold from Buy and reduced the target price for its stock to $79 from $85. He lowered the 2011 EPS estimate to $5.65 from $5.70 but maintained the 2012 EPS estimate at $6.25.

While BD is "a defensive name in the sector," Bhalla said that there is a chance the firm may reduce its long-term revenue growth outlook to between 4 percent and 5 percent from 6 percent during the next earnings release.

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