PerkinElmer Remains Neutral

We reiterate our Neutral rating on PerkinElmer (PKI - Analyst Report). Its third quarter adjusted earnings per share of 41 cents beat the Zacks Consensus Estimate of 39 cents. Revenues of $453.7 million were lower than the Zacks Consensus Estimate of $470 million.

Sales from the Human Health segment were $207.4 million, up 7% (up 2% on an organic basis) year over year. Revenues from the Environmental Health segment were $246.3 million, up 10% (up 6% on an organic basis).  

The company has updated its adjusted earnings per share forecast for fiscal 2011 to a slightly higher range of $1.66 to $1.68 (earlier $1.64 to $1.68). Reported earnings from continuing operations are forecast in the range of 94 cents to 96 cents. Organic revenue is still expected to increase in the mid single digits.

PerkinElmer has established itself as a market leader, particularly in the genetic screening segment, and holds one of top two market share positions in several important subsets of the life sciences technology and genetic screening businesses.

It, however, operates in a highly competitive industry characterized by rapid technological change and evolving industry standards. As a result, the company must make large investments in R&D in order to maintain a competitive pipeline. PerkinElmer competes with Thermo Fisher Scientific (TMO - Analyst Report) among others.

The company continues to execute well across all its product lines aided by rebounding markets and cost containment efforts. Its transfer of select manufacturing to China has expanded operating margins. PerkinElmer has increased its productivity and improved product mix in favor of higher value added products. This has led to higher operating margins.

PerkinElmer's exposure to poor end market visibility might result in a relatively unattractive risk-reward trade-off for the stock. Our Neutral recommendation is supported by a short-term Zacks #3 Rank (Hold).

Read the full analyst report on PKI