Reiterate PerkinElmer at Neutral

On Feb 7, we retained PerkinElmer ( PKI - Analyst Report ) at Neutral after the company met Zacks Consensus Estimate for earnings but missed revenue estimate for fourth quarter 2012.

Why the Retention?

PerkinElmer released its results for the fourth quarter 2012 on Jan 31. The company posted adjusted earnings of 65 cents per share, meeting the Zacks Consensus Estimate and surpassing the year-ago earnings of 62 cents a share. Revenues in the reported quarter increased 6.2% year over year to $572.9 million, missing the Zacks Consensus Estimate of $580 million.

Over the past 30 days, the Zacks Consensus Estimate for 2013 has moved down by a penny to $2.30 while the same for 2014 has dropped by 3 cents to $2.58 during the same timeframe.

The company forecasts adjusted earnings per share for 2013 in the range of $2.24 to $2.32. Reported earnings per share from continuing operations are forecast in the range of $1.57 to $1.65. Organic revenue is 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.

The company continues to execute well across several 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 must 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.

Other Stocks to Consider

We currently have a Zacks Rank #3 (Hold) on PerkinElmer. Mettler-Toledo International Inc. ( MTD - Snapshot Report ) and Becton Dickinson and Company ( BDX - Analyst Report ) carry Zacks Rank #2 (Buy). Both stocks are expected to do well.