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Waters Shares Pull Back Slightly After Friday Surge

NEW YORK (GenomeWeb News) – Waters shares today pulled back from a 30-day high reached on Friday amid rumors that the firm is a takeover candidate.

Shares of the maker of mass spectrometry and chromatography instruments and consumables were down nearly 3 percent at $36.36 in late afternoon Monday trade, following a 10 percent surge in its stock price on Friday. In comparison, the Dow Jones Industrial Average was down 4 percent around the same time this afternoon.

Waters closed up Friday at $37.31 after hitting a month-long high of $38.78 during the day.

One analyst who covers the firm said on Friday that some of the run up may have been due to rumors that Waters is a takeover candidate.

While that may have played a role, Leerink Swann analyst Isaac Ro today said that he believes there a few factors that helped push the stock up on Friday.

Ro told GenomeWeb Daily News that the acquisition rumors are "certainly an obvious explanation," noting that the life science tools sector is still a very fragmented market. He said there a couple of big players that would benefit from adding a deep high-performance liquid chromatography business, such as that owned by Waters, to their offerings.

He said if Waters was an acquisition candidate, a firm like Thermo Fisher Scientific would be a likely suitor. Thermo Fisher "would not only have a strategic interest, but also has a great track record with investors in terms of executing on mergers and creating a lot of value, they've got the balance sheet to do it, and they have the ability [financially] to do a deal like this," Ro said.

He also noted that Thermo Fisher could do the deal without its stock price taking a big hit.

However, Ro said that another factor that may have helped Waters' stock on Friday was that with the end of the quarter coming tomorrow, Waters did not pre-announce earnings as it has done in previous quarters when it wasn't going to meet its guidance numbers.

"You have to assume that the first half is going to be slow for all of these companies," said Ro, referring to the life science equipment vendors. He added that these firms cannot provide visibility into the second half of the year yet, and that is being further affected by the recent mergers in the pharma and biotech sectors.

He noted that Waters is particularly exposed to those mergers because around 60 percent of its revenues are derived from the drug industry.

"If you're looking for a stock to give better visibility at the margin, Waters is not your answer," he said. However, "It's at a historically low valuation, great return on capital, and a great franchise."

One other factor that could have been a catalyst for the surge in Waters' stock price, said Ro, could have been mutual funds adding Waters' stock to their portfolios before the quarter closes.

"You get stocks periodically getting run up because it's the end of the quarter, they're beat up and they're cheap, and you're better off with a company like Waters," he said. Fund managers are looking to put money where it's relatively safe and where the valuation "isn't ahead of itself" — and Waters is a fairly liquid stock with nearly a couple million shares being traded daily, he said.

In January, Waters had reported a 5 percent decline in instrument sales for its fourth quarter of 2008. While the firm gave little detail about its mass spectrometry business, at that time Ro had projected in a research note an 8 percent decline in organic sales for that part of Waters' business for 2009.

He noted today that firms like Waters and its mass spec competitors could see some benefit later in the year due to the release of stimulus funds targeting scientific research. "I think these companies will start to see good order flow at the end of the summertime as labs start to get better visibility on who's going to get money," said Ro. "You'll see the orders come through in the fourth quarter, and certainly in the first half of 2010 you're going to see" an improved market.

Ro said that product introductions at the American Society for Mass Spectrometry meeting in early June could provide a further boost to the sales of firms in the field late in the year.

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