NEW YORK (GenomeWeb) – Cantor Fitzgerald today downgraded PerkinElmer to Neutral from Overweight, but maintained the stock's $60 price target, citing a positive long-term outlook and caution in the near term.
In a note to investors, analyst Bryan Brokmeier wrote that although the company's outlook for first quarter earnings is in line with Wall Street expectations, a slowdown in growth from newborn screenings in China may pose a risk to revenues. In addition, an "uncertain political environment and an over-reliance on a contribution from new products" could also prove risky," he said. "We may become more positive on the shares if newborn screening penetration of India picks up, new product introductions contribute meaningfully to revenue, or a bolt-on acquisition positions the company for accelerated revenue and EPS growth."
In the long term, Cantor Fitzgerald said PerkinElmer is well positioned for growth. The company is expanding its diagnostic business in emerging markets such as India and China, expanding its pool of pharma customers with its OneSource service offering, and is benefiting from increasingly stringent food safety regulations.
Further, Brokmeier noted, PerkinElmer has published long-term plans to achieve 22 percent operating margin, which implies its earnings-per-share growth should accelerate into the mid-teens. However, he added, "top-line growth has languished over the past couple of years, and we are increasingly concerned that strong margin expansion may become more challenging without top-line acceleration."
When it comes to M&A, Brokmeier speculated, the company will likely continue to focus on small transactions in the near term, despite having $1.5 billion at its disposal for such deals. "PerkinElmer has been growing at below-industry average rates, but we have remained positive due to our view that a large bolt-on acquisition may fuel organic growth," he wrote. "However, based on numerous conversations with other companies, we believe that valuation expectations for attractive opportunities are rich and aren't showing signs of subsiding anytime soon."
He also said that if PerkinElmer is able to put its $1.5 billion to use, such M&A deals may add $375 million to $500 million to revenues and $.25 to $.40 to EPS.
PerkinElmer's shares fell less than 1 percent to $57.36 in Wednesday morning trading on the New York Stock Exchange.