NEW YORK (GenomeWeb) — Goldman Sachs on Tuesday released an omnibus report of its views on specific companies and sectors of the life sciences industry. The investment bank upgraded shares of Agilent to Buy; Thermo Fisher Scientific to the Americas Conviction Buy List; and Myriad to Neutral. Goldman also downgraded PerkinElmer to Sell and Danaher and Laboratory Corporation of America to Neutral.
The bank also raised its view of the life science tools sector to Attractive, lowered its view of the labs sector to Neutral, and reiterated its Neutral view of the diagnostics market.
In his research note, Goldman analyst Isaac Ro said he raised Agilent's stock to Buy from Neutral based on the work CEO Mike McMullen has done since taking over the company in March. Agilent has beaten its estimates for earnings per share twice since then, Ro said, "which we view as a good sign of progress towards an era of more consistent and higher quality execution." Agilent's guidance for 2016 also looks positive, and the valuation looks undemanding, Ro added. The company is also an attractive M&A target, he further noted.
Goldman sees an 18 percent upside to its $48 12-month price target for Agilent (up from $39).
Agilent's shares were up by 0.77 percent at $41.01 in afternoon trading today on the NYSE.
Goldman also upgraded Thermo Fisher, adding the company to the Americas Conviction Buy List from a simple Buy. Thermo Fisher's place between the healthcare and industrials sectors gives it an advantage, and its products "fuel R&D innovation globally," Ro said in his note. The company is also "underappreciated" by investors, he added.
Goldman's 12-month price target for Thermo Fisher is $158, based on a 19x multiple of the price-to-earnings ratio of the company's 2016 estimated earnings (up from 17.5x P/E). The bank did note, however, that a higher multiple is warranted given Thermo Fisher's growth and Goldman's positive outlook on the market.
Thermo Fisher's shares were up by 0.97 percent at $136.85 in afternoon trading today on the NYSE.
Myriad Genetics was also upgraded to Neutral from Sell. "Our [Sell] thesis was wrong," Ro noted, as it was based on the view that growing competitiveness in BRCA testing would drive down the company's consensus estimates. Instead, Ro said, the increased competition has created "a rising tide for all players in this market, including MYGN. … We now appreciate how engrained MYGN is within its core OB-GYN customer base, giving us increased confidence in MYGN's ability to maintain share."
Since Goldman added Myriad to the Americas Sell List in March, Ro noted, the company's shares have risen more than 18 percent, and its product portfolio continues to grow. The bank has placed a six-month target price of $40 on Myriad's stock, up from $31.
Myriad's shares were up by 3.18 percent at $44.12 in afternoon trading today on the Nasdaq.
PerkinElmer was among the list of Ro's downgrades, changed to Sell from Neutral. Goldman sees a 14 percent downside to the company's shares, as well as downside risk to its full-year 2016 consensus estimates for organic growth, citing its average 3.5 percent growth over the past 16 quarters compared to management's guidance of long-term growth in the mid-single digits.
Goldman has also applied a 10 percent discount to PerkinElmer's three-year relative price-to-earnings multiple, "which we think is warranted as PKI now offers a less favorable growth and margin opportunity vs. peers."
The bank would become more positive, Ro added, "if we saw signs of organic growth achieving management’s mid-single digit targets vs our projected 2016E of 3.6 percent." Goldman lowered its 12-month price target for the company to $44 from $50.
PerkinElmer's shares were down by 0.8 percent at $51.00 in afternoon trading today on the NYSE.
Goldman also downgraded Danaher and LabCorp to Neutral, from Buy and the Americas Conviction List, respectively.
The bank's Buy rating for Danaher was based on the company's strong end markets, but while it remains "a high-quality franchise," its end markets "will remain challenged into 2016," Ro said. Further, while Danaher's previous rating was also based on a strong history of M&A activity, "material M&A seems unlikely as the current leverage ratio is still at its peak," Ro added.
Goldman also downgraded LabCorp to Neutral, removing it from the Americas Conviction List, based on the company's mixed execution in its recently acquired Covance business unit. The bank has also become bearish on its previous view that LabCorp could benefit from the trend of cost-conscious health providers flocking to low-cost labs. "This dynamic has taken longer to play out than we had initially expected and we see no catalysts to accelerate this trend in the near term," Ro said in his note.
Goldman's 12-month price target is $103 for Danaher (down from $104), and $126 for LabCorp (down from $142).
Danaher's shares were down by 0.54 percent at $95.78 and LabCorp's shares were up by 0.37 percent at $125.17 in afternoon trading today on the NYSE.
Goldman also adjusted its views on three different life sciences industry sectors, raising the tools sector to Attractive from Neutral, lowering the labs and services sector to Neutral from Attractive, and remaining Neutral on diagnostics.
The biopharmaceuticals market is likely to remain robust, and academic funding is set to grow in 2016, Ro said. Further, spending on the development of industrial labs remains high, and the US GDP is accelerating. All of this "portends positively for tools organic growth," the note added.
The bank is less bullish, however, on the notion of upside for the labs and services sector in 2016 as volume year-to-date in 2015 has fallen short of expectations. "Meanwhile, the negative shift in tone around [Affordable Care Act] implementation now presents a mounting overhang for healthcare facilities, which we anticipate will weigh on multiples," Ro added.