(PKI) PerkinElmer Analyst Upgrades Shares to Outperform

We upgrade our rating on PerkinElmer (PKI) to Outperform based on solid results and benefits accruing from extensive reorganization. First-quarter 2011 earnings per share of 34 cents surpassed the Zacks Consensus Estimate of 30 cents. Revenues from continuing operations came in at $447.9 million, also sailing past the Zacks Consensus Estimate.

PerkinElmer is a leader in several life science segments and it has added new related areas as part of its reorganization while divesting unrelated businesses. As a consequence, it has emerged as a higher-growth, higher-margined company focused on human and environmental health. PerkinElmer competes with Thermo Fisher Scientific (TMO) among others.

The company views proteomics and genetic screening technologies as its thrust areas in the life sciences segment and it has made investments in high-content screening, proteomics, systems biology solutions and cellular sciences, among others. Furthermore, it has one of the highest exposures to China in life science tools (nearly 8% of revenues).

PerkinElmer has made many tuck-in or related acquisitions in the past and is presumed to be on the lookout for more such transactions. These acquisitions have helped the company grow and expand its product offerings. Simultaneously, PerkinElmer continues to make significant investments to organically develop its product pipeline.

PerkinElmer strengthened its focus on Human and Environmental Health through the divestiture of its Illumination and Detection Solutions (“IDS”) franchise in late-fiscal 2010. Restructuring is expected to lead to a higher organic revenue growth path and better incremental margins.

A growing recurring revenue stream and operating margin expansion are pillars of strength for PerkinElmer. The company’s transfer of select manufacturing to China has expanded its operating margin. PerkinElmer is positive that it will achieve its goal of high-teens adjusted operating margin by fiscal 2014.

The company’s significant international presence provides it with a diversified revenue and client base. International operations contribute over one-half of its revenues. Sales in emerging countries constituted in excess of 25% of total sales, in fiscal 2010, with a growth rate in the mid-teens. PerkinElmer enjoyed a growth rate of over 20% in each BRIC nation with important client acquisitions in each country.

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