We all need clean air, water and food to survive. But
maintaining the safety of these life-giving resources is becoming
more difficult as the global population swells. The result is
increased demand for specialized filtration and purification
systems. While there are many players in the business, this one
is head and shoulders above the competition.--
A Cleaner World
A manufacturer of separation, filtration and purification
) is a leading supplier of filtration systems and consumable
filters to a variety of industries. Its Life Sciences division
services biotech outfits and food and beverage producers, while its
industrial division targets municipal water systems and the
electronics industry. Pall's products provide clean drinking water
to millions of people, while lowering the spread of disease and
ensuring the integrity of food supplies around the world
Pall's steadily growing sales are a product of a diverse global
client base and old fashioned wear and tear; 75 percent of the
firm's revenues are generated by consumables.
The largest firm in the industry, Pall enjoys a strong
competitive advantage both in terms of pricing and the depth of its
client relationships. The company goes the extra mile by designing
custom filtration systems, even though this work is less profitable
up front. The upshot is that it allows Pall to create a long-term
revenue stream. Once clients have purchased a customized filtration
system from Pall, the cost of switching systems is prohibitively
high, making them long-term Pall customers. These relationships
have helped Pall capture about 7 percent of global market share in
a highly fragmented industry.
Pall should realize strong revenue and earnings growth in both
of its divisions as global infrastructure spending drives demand
for water filtration systems. Meanwhile, the biotech industry is
taking the lead in developing new drugs and medical devices,
opening another growth avenue for Pall.
Pall is also expanding its presence in the Middle East, where
desalination will play an important role in providing drinking
water to a growing population. Pall offers a line of specialized
filtration products for desalination applications that is enjoying
strong sales growth in the Middle East.
Asia has also been a major region of growth for the company,
particularly China, where environmental concerns and a series of
food safety scares have led to tighter controls on air, water and
even milk quality.
Asia accounted for 28 percent of Pall's total 2010 sales, while
its European operations generated 39 percent of revenue. The
remaining revenue contribution was spread across the globe.
Geographic diversity and a varied client base help insulate Pall
against regional or industry-specific downturns.
Over the next two years, Pall's earnings per share are expected
grow by about 15 percent as a result of steadily growing revenues
and improved efficiencies. These changes are expected to save Pall
about $40 million per year in operating costs.
Over the long term Pall should post revenue growth in the
mid-single digits--in line with the company's historical
performance--as it continues pushing into emerging markets.
However, the three-year average earnings per share growth will slow
from its current 25 percent to 12 to 15 percent as it becomes
increasingly difficult to squeeze additional efficiencies from
processes. Despite this slowdown, Pall still looks attractive for
its long-term growth potential.
WHY TO BUY
PALL CORP (NYSE:PLL. $43.32)
Growing demand in Asia and the Middle East signals rising
*Lean processes enhance profitability
*Custom engineering ensures customer loyalty
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