NEW YORK (GenomeWeb) – Deutsche Bank has initiated coverage on the life sciences and diagnostics sector, saying it is "generally positive" on the outlook for its fundamentals, even though company valuations are near historical highs, and assigned a Neutral outlook for the group of eight stocks.
Analyst Shawn Bevec assigned Buy ratings to shares of Fluidigm, Myriad Genetics, and Thermo Fisher Scientific, and Hold ratings to shares of Agilent Technologies, Bruker, Illumina, PerkinElmer, and Waters. He also listed Myriad and Thermo Fisher as "top" picks.
In a research note, he said he was particularly keen to the fact that life science tools firms are pushing the drive to personalized medicine. He also noted that the end markets — including biopharma, academia, and applied markets — appeared stable and that China could remain a key growth driver for the sector, despite a slowdown in that country's economic growth.
Bevec initiated Agilent with a Hold rating and a 12-month price target of $42 on the firm's shares. He cited the firm's "solid" management team and its market-leading positions as positives, and noted that following the spin off of the firm's electronic measurement business into a company called Keysight Technologies in November 2014, Agilent is now a pure-play life science tools firm for the first time in its history.
"We favor solid margin expansion stories and like the trajectory of the new Agilent," Bevec said, but added the stock was fairly valued and could potentially be bought at a more favorable entry price.
In morning trading, shares of Agilent on the NYSE were down 2 percent at $39.79.
He started coverage of Bruker with a Hold rating and a target price of $24. Bevec described Bruker as a "[t]urnaround story beginning to hit its stride."
With Agilent's exit from the nuclear magnetic resonance market, Bruker has the opportunity to consolidate its leading position in that market and grow over the next several years, he said. But the stock has rallied following its third quarter 2015 results, meaning there could be better opportunities to buy in the future, given the "choppy" nature of turnaround stories, Bevec said.
In morning trading on the Nasdaq, shares of Bruker were down 2 percent at $23.17.
Bevec initiated coverage of Fluidigm with a Buy rating and a price target of $18. Despite working mostly in the slower-growth academic market, the stock offered a pure-play opportunity for investors to get into the high-growth genomics market, Bevec said.
"Significant new product introductions in 2015 … coupled with a restructured commercial organization should reaccelerate [Fluidigm's] revenue growth in 2016-17 to strong double-digit rates," he said.
In morning trading on the Nasdaq, shares of Fluidigm were up less than 1 percent at $9.63.
Bevec initiated coverage of Illumina with a Hold rating and a price target of $192. Noting the firm's dominant position in next-generation sequencing and the breadth of its portfolio, Bevec said it was poised to take advantage of future growth opportunities.
"Overly high expectations, growing fears of increasing competition, and a negative guidance revision resulted in a 46 percent decline in [Illumina's] stock price from all-time high levels in 2015, which represented an excellent entry price for investors wanting exposure to the high-growth NGS opportunity," he said, but the time to buy has likely passed with shares up nearly 50 percent off the stock's lowest price in 2015.
In morning trading, shares of Illumina on the Nasdaq were down less than 3 percent at $173.
Bevec named Myriad a "Top Pick," initiating coverage with a Buy rating and price target of $52. Despite the unfavorable 2013 US Supreme Court ruling in AMP vs Myriad, the firm retains about 90 percent market share in hereditary cancer testing. Bevec noted that Myriad is diversifying away from hereditary testing with a "bold" growth strategy over the next five years. The firm's genetic variant database and "pristine" balance sheet were highlighted as other positives.
"[Myriad's] discounted valuation is no longer warranted given that fears regarding declines in the hereditary cancer test market following the 2013 SCOTUS decision appear to have been overblown," Bevec said.
In morning trading, shares of Myriad on the Nasdaq were down half a percent at $42.03.
Coverage of PerkinElmer kicked off with a Hold rating and a $51 target price. Bevec cited PerkinElmer's status as the number one provider in newborn screening and testing opportunities in China as a potential double-digit growth driver.
In morning trading, shares of PerkinElmer on the NYSE were down less than 3 percent at $50.80.
Bevec initiated coverage of Thermo Fisher, another "Top Pick," with a Buy rating and a price target of $160. He noted that the firm has the most diversified product portfolio and has balanced exposure to the different end markets that "should consistently produce low-to-mid single digit revenue growth and double-digit earnings growth."
He said the company also boasts strong management and a "disciplined" acquisition strategy focused on tuck-ins. Thermo Fisher's stock carries "the least absolute downside risk across the sector," Bevec said.
In morning trading on the NYSE, shares of Thermo Fisher were down 2 percent at $134.30.
Lastly, Bevec initiated Waters with a Hold rating and a $137 target price. Holding the number one spot in the liquid chromatography market "has allowed [Waters] to generate above-market revenue growth relative to large diversified LST peers," Bevec said. He noted the firm is less interested in M&A, using capital to repurchase shares. While Waters' stock warrants a premium valuation, Bevec said the share price already reflects that, and with less room for margin expansion and exposure to cyclical instrument revenue, it only warrants a Hold rating.
In morning trading, shares of Waters on the NYSE were up down 1 percent at $128.41.
In general, stocks in US markets were down in today's morning trading.