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Goldman Sachs Upgrades PerkinElmer and Affy, Downgrades Thermo Fisher

NEW YORK (GenomeWeb News) – Goldman Sachs today upgraded PerkinElmer and Affymetrix but downgraded Thermo Fisher Scientific.

In a report outlining its outlook for 2012 in the broad medical technology space, analysts Isaac Ro and David Roman upgraded the investment firm's rating for PerkinElmer to Buy from Neutral, saying changes it has made in recent years has left it well positioned in the coming year.

"PerkinElmer has undergone significant changes over the last couple years through a combination of divestitures and acquisitions that, in our view, have better positioned the company to take advantage of growing trends in genomics, informatics and service, meanwhile removing some of the elements of cyclicality from the core business and driving operating margins higher," Ro and Roman said.

As a result, they increased revenue estimates for the company to $1.94 billion for full-year 2011 from an earlier estimate of $1.92 billion. For 2012, they estimated revenues at $2.19 billion, up from $2.02 billion. EPS estimates were increased to $1.69 from $1.67 for 2011, while 2012 EPS was raised to $1.97 from $1.87.

Goldman Sachs was bullish on PerkinElmer's recent $600 million buy of Caliper Life Sciences and said that PerkinElmer's estimate of accretion of $.08 on a non-GAAP basis to EPS is "conservative." the analysts estimated that 61 percent of PerkinElmer's sales are outside of the US, compared to 48 percent for Caliper and its broad distribution channel "can drive greater growth and margin expansion, in part by increasing penetration of Caliper's differentiated, in vivo imaging technology.

Ro and Roman also upgraded Affy to Neutral from Sell. They said that their earlier Sell rating was based on growing demand for DNA sequencing technologies and constrained government funding that together was expected to hurt Affy's microarray business. During the Q2 2011 and Q3 2011 quarters, however, revenues from sequencing firms have "disappointed investors," while "[t]he 'crowd out' effect from DNA sequencing and academic funding challenges have also played out as we expected," the analysts said.

The company has also made a number of changes with potentially positive implications for the business, including the hiring of Frank Witney as CEO, the reduction in operating expenses, and the $330 million acquisition of eBioscience.

Ro and Roman cautioned that eBioscience may not change the course of Affy's long-term future and that pressure on the firm's microarray business remains "acute," but at current levels "we believe AFFX's valuation better reflects the aforementioned downside risks and now presents a more balanced risk/reward," they said.

They left revenue estimates for 2011 and 2012 unchanged at $266 million and $257.2 million respectively, and increased loss-per-share estimates for Affy to $.15 in 2011 from $.14, and to $.17 from $.01 in 2012.

Lastly, they downgraded Thermo Fisher to Neutral from Buy and lowered the 12-month target price on its shares to $50 from $61. Ro and Roman previously said that the company's diversified end-market mix and "valuation discount to peers" would protect it from broader market conditions.

However, the company has proven to be "less resilient than expected as academic funding pressures negatively impacted results more than we anticipated," noting that third-quarter organic growth was weaker than they had projected.

Though the acquisitions of Dionex and Phadia are expected to contribute to top-line growth, "our reduced organic growth assumptions leave our estimates in line with consensus," the Goldman Sachs analysts said. "Going forward, in conjunction with our more favorable view on the Life Science Tools group (Neutral from Cautious coverage view), we no longer believe defensive stock positioning is the best way to invest in Tools in this environment."

They lowered revenue estimates for full-year 2011 to $11.67 billion from $11.68 billion estimated previously. He also lowered the 2012 revenue estimate to $12.59 billion from $12.70 billion.

They lowered EPS estimates for Thermo to $4.14 from $4.16 for 2011. The 2012 EPS estimate was reduced to $4.76 from $4.91.

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