We recently reiterated our Neutral recommendation on Life Technologies Corporation (LIFE - Snapshot Report), a global biotechnology tools company. While we hold a favorable view regarding Life Technologies’ Genetic Analysis sales that received a strong boost from the Ion Torrent franchise; economic uncertainties lowering discretionary spending, NIH funding cut and unfavorable currency were the major headwinds for the company during the reported quarter. The stock currently carries a Zacks Rank #3 (Hold).
Why at Neutral?
Life Technology’s fourth-quarter adjusted earnings per share (EPS) of $1.11 remained in line with the Zacks Consensus Estimate but were down 5.7% year over year. Adjusted revenues increased 4.5% at CER to $999 million, ahead of the Zacks Consensus Estimate of $990 million.
Life Technologies enjoys a strong position in the life sciences market and we are impressed with the strong momentum of its Ion Torrent franchise. Moreover, the company is working on expanding its portfolio with several product launches.
In Feb 2013, a dozen new products for the Ion Torrent platform were launched, aimed at expanding clinical research across the globe.These new products enabled the Ion Torrent semiconductor sequencing technology to expand 1,000-fold in just 2 years and gain a 60% market share of benchtop sequencers.
Also, the recent acquisitions of BAC BV, Navigenics, Pinpoint Genomics and Compendia along with new distribution agreements in China and Chile would enable the company strengthen its diagnostics franchise and extend its footprint in emerging markets.
However, Life Technology’s exposure to the U.S. government funding is somewhere between 10% and 15%, depending on the level of funding. The recent sequestration cuts (implemented with effect from Jan 2, 2013) that curbed the NIH (National Institutes of Health) budget by 8% are expected to restrict the company from opting for medical innovations. Based on the NIH budget cut, the company provided a conservative 2013 outlook.
Other Stocks to Consider
While we prefer to remain on the sidelines on Life Technologies, other medical device stocks worth a look are Medical Action Industries Inc. , Given Imaging Ltd. and Acadia Health Company Inc. (ACHC - Analyst Report). All these stocks carry a Zacks Rank #1 (Strong Buy).