We reaffirm our Neutral recommendation on
) following its fourth-quarter 2011 results. The company
reported a strong quarter with both revenues and adjusted EPS going
past the Zacks Consensus Estimates.
Life Technologies' performance has been adversely affected by a
sustained slowdown in government and academic research funding over
the past few quarters, a trend that is expected to continue in
2012. This is significant since the company derives almost 45% of
its revenues from these customers.
However, the company is repositioning itself for a slower growth
environment by lowering its cost structure and increasing its focus
on R&D initiatives. The company has recorded robust revenue
(CAGR of 12% to $3.73 billion in 2011) and earnings growth (23% to
$3.73 per share) over the past 3 years. Moreover, free cash flow
clocked 33% growth over the same period.
Over the past couple of years, the company has been focusing on
creating an optimal portfolio of products through innovations and
acquisitions, the latest being Ion Torrent. The company derives 20%
of revenues from proprietary instruments, which in turn drive
demand for the high-margin consumables that account for the
We are also encouraged by Life's strategy to strengthen its
presence in high growth geographic markets such as Latin America,
the Middle-East, China and India. Life Technologies sniffs immense
potential in applied markets where technologies can facilitate
biological research in fast growing industries such as forensics,
food and water testing. Over the next few years, Life's focus on
developing industry-leading franchises in high-growth technology
areas, applied markets and emerging geographies will be the key
drivers for long-term growth.
We are impressed with the robust growth recorded by the Ion
Personal Genome Machine ("PGM") that was launched in December 2010
taking the total number of system placements to 700 in 2011.
Maintaining the upbeat trend, PGM sales were strong during the
reported quarter, growing on a sequential basis.
The company is satisfied with the progress made so far with Ion
Torrent technologies and expects the growth momentum to continue.
This growth will be supported by more PGM placements and the
scheduled launch of Ion Proton Benchtop sequencer in the second
half. In October 2011, the Ion franchise was further boosted by the
launch of the Ion AmpliSeq Cancer Panel to help scientists to
sequence dozens of genes in cancer research samples using a simple
workflow. With the launch of new products, contribution of the Ion
portfolio is expected to increase over the next few quarters.
Life Technologies sets much in store by the scheduled launch of
the Ion Proton sequencer in the second half of 2012 though
competition in the DNA sequencing market is increasing. While
) plans to launch its HiSeq 2500 in the second half, Oxford
Nanopore Technologies' MinION is also in the queue, which is a
disposable DNA sequencing device the size of a USB memory
Our recommendation is backed by a Zacks #3 Rank ("Hold") in the
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