PerkinElmer, Inc. PKI continues to benefit from the core Diagnostics segment, robust international growth and continued margin expansion. However, forex volatility remains a concern.
Shares of PerkinElmer have gained 15.8%, underperforming the industry’s growth of 22.3% on a year-to-date basis. Meanwhile, the S&P 500 Index rallied 23.3% in the same timeframe.
This company, with a market capitalization of $10.11 billion, offers scientific instruments, consumables, and services to pharmaceutical, biomedical, environmental testing, chemical, and general industrial markets worldwide. The company’s earnings are anticipated to grow 13.5% in the next five years. Moreover, the company has delivered a positive earnings surprise of 2.6% on average in the trailing-four quarters.
Let’s delve deeper into the factors that substantiate why it's perfectly alright to hang onto this Zacks Rank #3 (Hold) stock.
Factors to Boost PerkinElmer
The company continues to benefit from strong performance by the Diagnostics segment. In third-quarter 2019, revenues improved both on a reported and organic basis while operating income increased significantly on a year-over-year basis. Per management, the upside can be attributed to strength across reproductive health and immunodiagnostics business lines.
The company remains well-poised to benefit from rising middle class in the developing countries of the Asia Pacific and Latin America. Growing demand for affordable healthcare in these regions creates significant opportunities for PerkinElmer.
Additionally, the company continues to gain traction from a comprehensive suite of scientific informatics and software solutions, which in turn helps to aggregate data into actionable insights in an automated and scalable way.
Acquisitions and partnerships have been key catalysts for PerkinElmer over the years. Moreover, buyouts made by the company in the last few years provided a substantial boost to the product portfolio.
Further, continued expansion in gross and operating margins buoys optimism. It is encouraging to note that management anticipates operating margin in 2019 to expand 150 bps and is confident about achieving its goal of 22% of adjusted operating margins in 2020.
What’s Deterring the Stock?
At the third-quarter 2019 conference call, management announced that it anticipates foreign exchange headwind of approximately $11 million for the fourth quarter of 2019 and $41 million for the year.
Meanwhile, on the tariff side, the company confirmed that it expects a headwind of $1 million or less in the coming quarters from China.
Growing exposure to international markets increases the risk of foreign exchange volatility that can affect the company’s international sales.
Which Way Are Estimates Headed?
For 2019, the Zacks Consensus Estimate for revenues is pegged at $2.88 billion, indicating an improvement of 3.7% from the year-ago quarter’s reported figure. For adjusted earnings, the same stands at $4.08 per share, suggesting growth of 13% from the year-ago reported figure.
Stocks to Consider
Some better-ranked stocks from the broader medical space are Conmed Corporation CNMD, Cardinal Health, Inc. CAH and DENTSPLY SIRONA Inc. XRAY, each currently carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Conmed Corporation has a long-term earnings growth rate of 17%.
Cardinal Health has a long-term earnings growth rate of 6.2%.
DENTSPLY SIRONA has a long-term earnings growth rate of 11.6%.
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