We recently reiterated our Neutral recommendation on Life Technologies Corporation (LIFE), a global biotechnology tools company. Following the announcement of its impending takeover by Thermo Fisher, and the overwhelming approval of its stockholders in favor of the deal, Life Technologies’ shares have already reached its justified high. As a result, further upward potential of the stock seems restricted. The stock currently carries a Zacks Rank #3 (Hold).
Why at Neutral?
Life Technologies reported a better-than-expected third-quarter 2013 with adjusted EPS of $1.02 exceeding the Zacks Consensus Estimate by 5 cents and the year-ago number by 10.9%. Revenues increased 4% at CER to $936 million, comfortably beating the Zacks Consensus Estimate of $930 million.
Given Life Technologies’ expansive line of consumables for genomic, and molecular and cell biology, the acquisition by Thermo Fisher will effortlessly strengthen the combined company’s global foothold and commercial reach. As part of the larger Thermo Fisher group, we expect improved revenues and cost synergies for both the companies.
Life Technologies enjoys a strong position in the life sciences market and we are impressed with the strong momentum of its Ion Torrent franchise. Moreover, the company is working on expanding its portfolio with several product launches.
In Oct 2013, Life Technologies extended its collaborative agreement with DNAVEC Corporation to launch CytoTune-iPS 2.0 Sendai Reprogramming Kit, the next-generation research technology that enables the most efficient method to develop induced pluripotent stem (iPS) cells from human somatic cells. In September, the company’s diagnostic testing menu got a boost when its partner Quidel Corp. (QDEL) received the U.S. Food and Drug Administration's (:FDA) 510(k) clearance for two of its infectious disease tests to be run on QuantStudio Dx Real-Time PCR Instrument, Life Technologies’ flagship instrument for the diagnostics market.
In Jul 2013, Life Technologies entered into a five-year agreement with the Food and Drug Administration (:FDA) to accelerate and advance food safety testing of E. coli and Salmonella, two foodborne contaminants.
However, Life Technology’s exposure to the U.S. government funding lies between 10% and 15%, depending on the level of funding. The recent sequestration cuts (implemented with effect from Jan 2, 2013) that curbed the NIH (National Institutes of Health) budget by 8% are expected to restrict the company from opting for medical innovations.
The company earns 50% of its revenues from international operations, which expose it to unfavorable currency movement. Based on the Sep 30, 2013 rate, currency is expected to have an impact of $57 million on fiscal 2013 revenues and $0.13 on the yearly-adjusted EPS.
Other Stocks to Consider
While we prefer to remain on the sidelines regarding Life Technologies, other medical device stocks worth a look are Mead Johnson Nutrition Company (MJN) and NuVasive, Inc. (NUVA), both carrying a Zacks Rank #2 (Buy).