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Mizuho Initiates Coverage of Molecular Tools Vendors

By a GenomeWeb staff reporter

NEW YORK (GenomeWeb News) – Mizuho Securities has initiated coverage on five molecular tools firms, adding to a number of molecular diagnostics firms the investment bank began covering last month.

After the close of the market on Monday, Mizuho announced in separate reports it was covering Illumina, Life Technologies, Waters, Thermo Fisher Scientific, and Sigma-Aldrich.

In his report on Illumina, Peter Lawson, who is leading the research for Mizuho, gave the company a Neutral rating and a share target price of $62, about a 3 percent upside from the current stock price. In a report, he called the company "the leading genomic solutions provider with industry-leading market shares in next-generation sequencing and genotyping arrays." He added that Illumina is the "best pure play for the decentralization of DNA sequencing from genome centers into applied markets such as molecular medicine, diagnostics, and ag-bio."

He gave Life Technologies an Outperform rating with a price target of $58, 15 percent above the current stock price. Lawson called it a "high quality" life science firm and cited its potential in molecular medicine, significant financial leverage, and strong cash flows. Its "cutting-edge" biological research and clinical tools is outpacing peers, he added, and said that the company's exposure to emerging markets should neutralize a spending slowdown by US and European academia.

He initiated cover of Thermo Fisher Scientific also with an Outperform rating and a price target of $60, about 17 percent above its current stock price. According to Lawson, the company has an "unmatched distribution channel that offers significant diversification and upside from tuck-ins." Also, it has large margin upside. Though Thermo Fisher's gross margins are the lowest in the industry, Lawson said expansion can drive up EPS as well as the multiple. Significant cash flow can be used for acquisitions to fill its distribution channels and return cash to shareholders, Lawson said.

Mizuho also initiated coverage of Waters with a Neutral rating and a target price of $82, about 4 percent above the current stock price. Lawson called Waters "one of the highest quality life science franchises with a strong record of innovation driving above-market growth." Waters is essentially a pure-play "on the re-acceleration of biopharma R&D spending and could see upside from emerging market growth," he said.

Lastly, Lawson initiated coverage of Sigma-Aldrich with a Neutral rating and a price target of $65, a 2 percent increase from the current price. Because of its "outstanding distribution capability" the company is a "go-to" supplier for biochemical customers, and can build or buy into the fastest growing areas in healthcare, Lawson said. Its product line, which is focused on consumables, is less vulnerable to cyclical trends, which reduces revenue risks. The company has been flying under the radar and remains "underfollowed," Lawson added.

In a separate report on the life sciences tools industry, Lawson wrote that the key areas of new growth will come from emerging nations, and especially Brazil, Russia, India, and China; new technology applications, such as stem cells, DNA sequencing, and molecular medicine; and decentralized testing in medical and applied markets, such as food testing and import-export screening.

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