We reiterate our Neutral recommendation on
Life Technologies Corporation
) with a target price of $46.00.
Life Technologies reported a strong first quarter 2012 with both
revenues and adjusted earnings per share (EPS) sailing past the
Zacks Consensus Estimates. The company has modified its
reporting structure and now books revenues under Research
Consumables, Genetic Analysis and Applied Sciences divisions.
To counter the various headwinds witnessed in its end markets
and bolster the bottom line, Life Technologies is stepping up a
number of cost-saving initiatives. Accordingly, the company
reported a 200 basis point (bps) improvement in adjusted operating
margin to 30.2% in the reported quarter.
The company is realizing savings in terms of efficient
administration, aligning R&D programs and manufacturing
efficiencies. The company is targeting operating margin of 31% for
2013, up from 29% in 2011, which will be achieved through fixed
cost leverage, supply chain efficiencies and manufacturing
As a result of Life Technologies' increasing focus on the
emerging markets, this region now accounts for approximately 10% of
total sales. While the company had derived revenues worth $188
million in 2007 from this region, the figure is expected to shoot
up to $1.6 billion in 2015, representing a CAGR of 30%.
In the last quarter, the company recorded robust growth across
several emerging markets - Greater China (high-teens growth), Latin
America (double-digit) along with Eastern Europe and Russia --
where sales network expansion is ongoing. The company is leaving no
stone unturned to harness the immense potential of this region. The
strategies include investment in infrastructure, increasing sales
force and maximizing its eCommerce capability.
The Ion Torrent franchise at Life Technologies is also a
potential growth driver. This franchise was inducted into the
company's portfolio with the acquisition of Ion Torrent, a DNA
sequencing company, in October 2010. For the past few quarters, the
company has been recording robust growth from its Ion personal
genome machine ("PGM"). Launched in December 2010, the total number
of PGM placements rose to 700 in 2011.
However, the company continues to experience lower demand from
academic and government-funded researchers in the US and Europe,
which might worsen with deteriorating economic conditions.
Moreover, the competitive landscape is tough with the presence of
), among others.
Our recommendation is backed by a Zacks #3 Rank (Hold) in the
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