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PerkinElmer's Chinese Acquisition

TMO PKI

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PerkinElmer Inc. (PKI - Analyst Report) recently reported that it had completed the takeover of Shanghai Haoyuan Biotech Co. Ltd., which is a Chinese company focused on diagnosing infectious disease. With this takeover, PerkinElmer further cements its role as a global leader in diagnostics. The acquisition strengthens PerkinElmer’s role in the Chinese clinical diagnostics arena as well as nucleic acid screening of blood.  

Haoyuan provides PerkinElmer with four infection assays, which are recognized by China’s State Food and Drug Administration (SFDA). PerkinElmer believes that by acquiring Haoyuan’s equipment and reagents, it will be in a strong position to sell, in the Chinese market, sophisticated assays and systems for detecting infections in the blood.

PerkinElmer paid $38 million in a cash deal along with the possibility of additional payments following accomplishment of sales targets. The takeover is slated to be neutral to adjusted earnings in 2012 and 2013 and subsequently turn accretive.  

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.

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

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

PerkinElmer's exposure to poor end market visibility might result in a relatively unattractive risk-reward trade-off for the stock. However, the company’s operations, both sales and manufacturing, are diversified on a geographic basis. It has emerged as a higher-growth, higher-margin company vis-à-vis its peers. The stock carries a short-term Zacks #2 Rank (Buy).

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