(PKI) PerkinElmer Remains Neutral

We maintain our Neutral rating on PerkinElmer (PKI) based on its second quarter results. Adjusted earnings per share of 53 cents surpassed the Zacks Consensus Estimate of 48 cents. Net income from continuing operations in the reported quarter was $33.6 million (or 29 cents per share), up 12.3% year over year.

Revenues came in at $521.8 million in the reported quarter, up 8.9% year over year, but missed the Zacks Consensus Estimate of $537 million.

Growth was aided by an extended product portfolio comprising innovative and improved offerings from PerkinElmer. Revenues grew 5% year over year on an organic basis after adjustment for acquisitions which contributed 8% to the growth in revenues in the quarter and a 4% drop after accounting for foreign currency.

Human Health segment revenues were $258.4 million, up 18.1% (up 4% on an organic basis) year over year. Revenues from the Environmental Health segment amounted to $263.4 million in the quarter, up 1.2% (up 5% on an organic basis).

For 2012, PerkinElmer reaffirmed its guidance for organic revenue to increase in the mid-single digits. The company continues to expect adjusted earnings per share of about $2 to $2.05 for 2012. PerkinElmer revised its forecast for reported earnings per share in a range of $1.21 to $1.26, compared with the prior guidance in the band of $1.27 to $1.32.

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 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) among others.

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).

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