Company Overview: PerkinElmer, Inc. (NYSE: PKI) has its headquartered in Waltham, Massachusetts. The company is one of the top providers of products, services and solutions for the life sciences, diagnostics, as well as applied markets. The company sells and markets its products and services in greater than 190 countries. Notably, the company has more than 14,000 employees and is listed on the New York Stock Exchange and is part of the S&P 500 Index.

PKI Details

PKI Rides on New Product Launches and Acquisition Synergies: PerkinElmer, Inc. (NYSE: PKI) is engaged in providing scientific instruments, services to pharmaceutical, environmental testing, biomedical, chemical, and general industrial markets on a global basis. The company has two reportable business segments, namely (1) Discovery & Analytical Solutions and (2) Diagnostics. The company’s Diagnostics segment is expected to aid the top-line, given the strength in immunodiagnostics and applied genomics business. Moreover, the persistent increase in infectious and autoimmune diseases, especially in emerging markets, might benefit the segment, going forward.

The company offers a broad suite of scientific informatics and software solutions in an automated and scalable way. As per the management, PKI has spent an incremental $25 million in digital resources and people. Further, it has advanced greater than $200 million in research and development activities. This will aid PKI to continue developing a strong pipeline of innovative and new products across a full set of technologies.

Looking at the past 4 years, the company has reported a revenue CAGR of 15.6%. Also, the company witnessed a CAGR of 32.8% in its net income over a period of 4 years (FY16 to FY20). Bolstering exposure in new markets, acquisition synergies, and product development remain major tailwinds. The company completed four business acquisition for a total consideration of $438.7 million in 2020. It is worth mentioning that the company remains dedicated to reward shareholders via dividend pay-outs and share-buyback programs. On October 22, 2020, the company declared a quarterly dividend of $0.07 per share, which was paid in February 2021. Additionally, on January 28, 2021, the company declared a quarterly dividend of $0.07 per share, payable in May 2021, to its shareholders.

Key Trends (Source: Company Reports)

Given the robust productivities initiatives and volume leverage, the company continues to witness higher gross and operating margins. The new product launches are anticipated to enhance the product mix, thus, boosting gross margin. This, along with stringent cost control measures, will continue to lead to operating margin, going forward.

It is worth mentioning that the company has obtained CE marking for a multi-analyte PCAM respiratory SARS-CoV-2 RT-PCR panel in relation to the approval of launching new products. The approval pertains for the direct identification of COVID-19 influenza A, influenza B as well as Respiratory Syncytial Virus, RSV, in a solitary test ahead of the forthcoming flu season. Notably, the company had unveiled two Research Use Only (RUO) solutions, namely PKamp VariantDetect SARS-CoV-2 RT-PCR Assay and Next Generation Sequencing-based NEXTFLEX Variant-Seq SARS-CoV-2 Kit. These launches aid the company to sense genomic mutations registered in relation to SARS-CoV-2 variants. This move has aided the company to bolster and expand its portfolio of testing solutions. Further, the above-mentioned tests are likely to enhance the company’s Diagnostics business line.

4QFY20 Key Highlights: During the quarter, the company reported adjusted earnings per share of $3.96, depicting an increase of 193.3% year over year. Revenues for the quarter came in at $1.36 million, an increase of 68% year over year and a rise of 65% organically. Adjusted revenues went up 68.2% year over year, during the quarter. Gross profit on an adjusted basis in 4QFY20 came in at $853 million, depicting a rise of 101.9% on pcp. Adjusted operating income increased a whopping 197% on pcp and came in at $571.2 million.

On a segmental basis, the company reported revenues from Discover & Analytics Solutions segment of $503 million, depicting an increase of 1.4% year over year. Continued strength in life sciences was a key positive in 4QFY20. Coming to the Diagnostics segment, revenues came in at $852 million, an increase of 175.7% on a prior corresponding period.

Key Highlights (Source: Company Reports)

Key Update: Recently, Horizon Discovery, a PKI’s company informed the market that it has extended its gene editing and modulation portfolio to incorporate a new family of CRISPR modulation (CRISPRmod) reagents for CRISPR interference (CRISPRi). This expansion is likely to augment PKI’s Diagnostics segment.

Key Metrics, Liquidity & Balance Sheet Details: The company exited the quarter with cash and cash equivalents of $402.04 million (as of January 3, 2021), up from the prior quarter figure of $258.3 million. Long term debt at the end of the quarter came in at just $1,609 million. During the quarter, the company recorded net cash flow from operating activities of $482.1 million, up from $215.2 million reported in the year-ago period. We opine that an increase in cash flow will facilitate it to pay off debt commitments as well as it will provide higher compensation to shareholders.

In FY20, operating, EBITDA and net margins stood at 25.9%, 33.3% and 19.2%, higher than the industry median of 9.5%, 17.5% and 5.3%, respectively. In FY20, ROE stood at 22.2%, higher than the industry median of 5.4%. Debt to equity in the same time span stood at 0.53x, lower than the FY19 figure of 0.32x.

Profitability and Leverage Profile (Source: Refinitiv, Thomson Reuters), Analysis by Kalkine Group  

Top 10 Shareholders: The top 10 shareholders together form around 53.99% of the total shareholdings, while the top 4 constitutes the maximum holding. Capital Research Global Investors and The Vanguard Group, Inc. are holding a maximum stake in the company at 10.86% and 10.83%, respectively, as also highlighted in the chart below: 

Data Source: Refinitiv, Thomson Reuters, Analysis by Kalkine Group 

Risk Analysis: The company’s exposure to the international markets intensifies the risk of foreign exchange volatility. In 4QFY20, revenues were obstructed by foreign exchange headwind of 3%. The company continues to acquire a larger number of companies, which add to the integration risk. PKI’s business, financial, and operating conditions highly depend on general economic conditions and spending powers of customers. If such circumstances worsen, it may negatively impact the overall financial performance of the company. Further, the company is exposed to short-term disruptions hindering from challenging macro-economic environment due to COVID-19 led outbreak. The company also faces stiff competition from peers, which add to the woes.

Outlook: For 1QFY21, PKI expects adjusted EPS to be minimum of $3. Revenue for 1QFY21 is expected to be ~$1.19 billion, depicting a growth of 83% year over year. For FY21, PKI projects adjusted EPS to be a minimum of $8.50, whereas revenues are expected to be at least $4.08 billion, depicting a growth of more than 8% year over year.

Outlook (Source: Company Reports)

Valuation Methodology: P/CF Multiple Based Relative Valuation (Illustrative) 

Data Source: Refinitiv, Thomson Reuters, Analysis by Kalkine Group 

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks. 

Stock Recommendation: Over the last three months, the stock went down by ~8.7%. The stock made a 52-week low and high of $69.6 and $162.7, respectively. On the technical analysis front, the stock has a support level of ~$121.2 and a resistance level of ~$138.1. We have valued the stock using the P/CF multiple based illustrative relative valuation method and arrived at a target price of an upside of low double-digit (in percentage terms). We believe that the company can trade at a slight discount as compared to its peer’s average, considering, the integration risk, fluctuations in currency exchange rates and ongoing declines across reproductive health business line. We have taken peers like Thermo Fisher Scientific Inc (NYSE: TMO), Avantor Inc (NYSE: AVTR), to name a few.  Considering the company’s decent 4QFY20 performance, geographical expansion, decent outlook, and liquidity position and valuation, we give a “Buy” recommendation on the stock at the closing price of $128.29, up by 0.44% on 31 March 2021.  

PKI Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

Disclaimer

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