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Cowen & Co. Initiates Coverage of Bruker with Outperform Rating

NEW YORK (GenomeWeb News) – Cowen & Co. today started covering Bruker, giving it an Outperform rating and a $21 price target.

In a research report, analyst Doug Schenkel said that while Bruker has challenges ahead and near-term catalysts for its shares are not obvious, "we are enthused about the long-term potential and associated unlocking of significant value; we view the risk/reward as very compelling for investors with an 18-24 month investment horizon."

In particular, Schenkel took note of management changes at Bruker implemented since the middle of 2012, as well as changes to its incentive structure to zero in on operating and free cash flow targets.

The moves, he said, should "greatly improve Bruker's operational and cash flow profile."

In particular, Schenkel was bullish about the appointment of Charlie Wagner in June 2012 as CFO. Wagner was previously at Millipore and Progress Software as CFO and served as a director at Bruker from August 2010 to June 2012. As CFO, Schenkel said, Wagner "is primarily responsible for driving changes in Bruker to improve profitability and much of the potential success hinges on him."

Schenkel also was enthusiastic about the addition of Juergen Srega as president of Bruker's Chemicals, Applied Markets, Life Science, In Vitro Diagnostics, and Detection, or CALID, segment.

The segment is of particular interest because it contains the Chemical and Applied Markets division, which with revenues of about $100 million and losses of greater than $25 million in 2012 is "one of the largest drags" on Bruker's operating margins, Schenkel said.

As a whole, Brukers organic revenue growth of greater than 10 percent per year during the past three years, but that has not translated to improved earnings, Schenkel said.

"It will be critical to leverage Mr. Srega’s experience at the much more operationally disciplined Thermo Fisher to drive margin expansion in CAM and the rest of the CALID group," he wrote.

On a positive note, he said Bruker is well established outside of the US and 80 percent of the company's sales come internationally, with Asia-Pacific a strong growth driver during the past three years. Sales to the region accounted for 32 percent of total sales in 2012, up from 26 percent in 2009, with China making up about 10 percent of total sales.

Schenkel also noted that the life science tools space has seen a number of large acquisitions in the past few years, and while Bruker is about 30 percent owned by Frank and Jeorg Laukien — making the chances of a strategic sales "relatively less likely" — insider ownership has declined "significantly" in recent years.

If Bruker were to be acquired, Schenkel estimated a potential selling price of between $23 and $25 per share, or about a 31 percent to 43 percent premium to Bruker's closing price of $17.48 on July 19.

In summary, Schenkel said, "We believe the revamped management team and incentive structure is very capable of turning Bruker's profitability around: the key question is what is the timeline associated with these changes and results."

In afternoon trading, shares of Bruker on the Nasdaq were up about 4 percent at $18.13.